Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities, 12811-12865 [2014-03967]

Download as PDF Vol. 79 Thursday, No. 44 March 6, 2014 Part III Department of the Treasury tkelley on DSK3SPTVN1PROD with RULES3 Internal Revenue Service 26 CFR Part 1 Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities; Final Rule VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\06MRR3.SGM 06MRR3 12812 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9657] RIN 1545–BL73 Regulations Relating to Information Reporting by Foreign Financial Institutions and Withholding on Certain Payments to Foreign Financial Institutions and Other Foreign Entities Internal Revenue Service (IRS), Treasury. ACTION: Final and temporary regulations. AGENCY: This document contains final and temporary regulations under chapter 4 of Subtitle A (sections 1471 through 1474) of the Internal Revenue Code of 1986 (Code) regarding information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts and withholding on certain payments to FFIs and other foreign entities. These regulations affect persons making certain U.S.-related payments to FFIs and other foreign entities and payments by FFIs to other persons. The text of the temporary regulations also serves as the text of the proposed regulations set forth in a crossreference notice of proposed rulemaking (REG–130967–13) published in the Proposed Rules section in this issue of the Federal Register. DATES: Effective date. These regulations are effective on March 6, 2014. FOR FURTHER INFORMATION CONTACT: Tara Ferris, Nancy Lee, Michael Kaercher, or Kamela Nelan at (202) 317–6942 (not a toll-free number). SUPPLEMENTARY INFORMATION: SUMMARY: Background tkelley on DSK3SPTVN1PROD with RULES3 I. In General This document contains amendments to the Income Tax Regulations (CFR part 1) under sections 1471 through 1474 of the Code (commonly known as the Foreign Account Tax Compliance Act, or FATCA). On March 18, 2010, the Hiring Incentives to Restore Employment Act of 2010, Public Law 111–147 (the HIRE Act), added chapter 4 of Subtitle A (chapter 4), comprised of sections 1471 through 1474, to the Code. Chapter 4 generally requires U.S. withholding agents to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the Internal Revenue Service (IRS) regarding their U.S. accounts, and on certain VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial United States owners (substantial U.S. owners) to withholding agents. On January 28, 2013, final regulations (TD 9610) under chapter 4 were published in the Federal Register (78 FR 5874) and, on September 10, 2013, a correction to the final regulations was published in the Federal Register (78 FR 55202) (final regulations). The Treasury Department and the IRS received numerous comments in response to the final regulations. Following publication of the final regulations, the Treasury Department and the IRS also issued additional guidance under chapter 4. Notice 2013– 43 (2013–31 I.R.B. 113) previews the revised timelines for implementation of the FATCA requirements (which are adopted by these temporary regulations) and provides additional guidance concerning the treatment of FFIs located in jurisdictions that have signed intergovernmental agreements for the implementation of FATCA (IGAs) but have not yet brought those IGAs into force. In particular, Notice 2013–43 clarifies that a jurisdiction is treated as having in effect an IGA if the jurisdiction is listed on the Treasury Web site as a jurisdiction that is treated as having an IGA in effect. In general, the Treasury Department and the IRS intend to include on this list jurisdictions that have signed but have not yet brought into force an IGA. The list of jurisdictions that are treated as having an IGA in effect is available at the following address: http:// www.treasury.gov/resource-center/taxpolicy/treaties/Pages/FATCAArchive.aspx. Notice 2013–69 (2013–46 I.R.B. 503) further previews some of the changes that the Treasury Department and IRS intend to make to the final regulations and publishes a draft of the agreement that an FFI may enter into with the IRS in order to satisfy its obligations under section 1471(b) of the Code and be treated as a participating FFI (FFI agreement). Revenue Procedure 2014–13 (2014–3 I.R.B. 419) provides the final FFI agreement. II. Regulatory Approach to Implementing Chapter 4 Chapter 4 grants the Secretary of the Treasury broad regulatory authority to prescribe rules and procedures relating to the diligence, reporting and withholding obligations under FATCA. The Treasury Department and the IRS exercised this authority by publishing final regulations that provide specific operational guidelines for implementing FATCA in a manner consistent with its PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 policy objectives. As described in the preamble to the final regulations, the final regulations implement the statute based on a risk-based approach that is intended to address policy considerations, eliminate unnecessary burdens, and to the extent possible, build on existing practices and obligations. Following publication of the final regulations, the Treasury Department and the IRS received unsolicited comments suggesting changes to or requesting clarification of certain rules in the final regulations. As a result of these comments, the Treasury Department and the IRS have continued to work with affected parties to develop rules that achieve an appropriate balance between fulfilling the important policy objectives of chapter 4 and minimizing the burdens imposed on stakeholders. As part of this process, the Treasury Department and the IRS have carefully considered comments received in response to the final regulations and have met with stakeholders. While many of these comments reiterate comments that were received and considered prior to the publication of the final regulations or suggest changes to the final regulations that are outside the scope of these temporary regulations, a number of comments proposed changes to the final regulations that the Treasury Department and the IRS believe warrant inclusion in these temporary regulations. The Treasury Department and the IRS will accept comments and engage with interested stakeholders in connection with finalizing these temporary regulations. Explanation of Provisions I. In General In response to comments and after further consideration, these temporary regulations revise and further clarify the final regulations. To this end, these temporary regulations take into account helpful comments received and provide additional detail and certainty regarding the scope of obligations imposed under chapter 4. In addition, these temporary regulations reflect changes made to the final regulations to coordinate the chapter 4 regulations with the temporary regulations published under chapters 3 and 61 and section 3406 of the Code. Additionally, these temporary regulations contain modifications to the final regulations to further harmonize them with the IGAs. Several of the changes made by these temporary regulations were previewed in Notice 2013–69, the draft FFI agreement, and E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations certain of the draft IRS forms released throughout 2013. The following sections provide a discussion of the additions and modifications made by the temporary regulations to the final regulations. To facilitate this discussion, the defined terms set forth in the temporary regulations are used throughout. II. Comments and Changes to § 1.1471– 1—Scope of Chapter 4 and Definitions To address comments received and to provide further clarification, these temporary regulations modify certain definitions contained in the final regulations. A. Direct Reporting NFFE, Sponsored Direct Reporting NFFE, and Sponsoring Entity Comments requested an election providing NFFEs with the ability to report information about their substantial U.S. owners directly to the IRS rather than to withholding agents. In response to these comments and as previewed in Notice 2013–69, these temporary regulations provide certain NFFEs with elections to be treated as direct reporting NFFEs or sponsored direct reporting NFFEs. A NFFE that is treated as a direct reporting NFFE or sponsored direct reporting NFFE shall be treated as an excepted NFFE. Accordingly, definitions have been added for a direct reporting NFFE and a sponsored direct reporting NFFE, and the definition of a sponsoring entity has been modified. Conforming changes have also been made throughout these temporary regulations to implement these changes. regulations also remove the definition of offshore account because it is included in the definition of offshore obligation under § 1.6049–5(c)(1). D. Pre-FATCA Form W–8 These temporary regulations make a clarifying change to the definition of pre-FATCA Form W–8. The final regulations define pre-FATCA Form W– 8 as certain Forms W–8 that do not contain chapter 4 statuses. However, the chapter 4 status of a non-U.S. individual filing a Form W–8 is the same as his or her chapter 3 status. Therefore, the definition in the final regulations could be interpreted to mean that any Form W–8 previously submitted by a non-U.S. individual could not be treated as a preFATCA Form W–8. These temporary regulations modify the definition of preFATCA Form W–8 to avoid this result. tkelley on DSK3SPTVN1PROD with RULES3 B. Excepted NFFE These temporary regulations modify the definition of excepted NFFE such that excepted NFFEs include, among other things, a direct reporting NFFE and a sponsored direct reporting NFFE. In addition, to correct an oversight, the definition of excepted NFFE under these temporary regulations is further expanded to include a NFFE that is a qualified intermediary (QI), withholding foreign partnership (WP) or withholding foreign trust (WT). E. Standardized Industry Coding System The final regulations define the term standardized industry code to mean a code that is part of a coding system that is used to classify account holders by business type for purposes other than tax purposes and that is implemented by the withholding agent by the later of January 1, 2012, or six months after the date the withholding agent is formed or organized. In response to comments, these temporary regulations remove the term standardized industry code and replace it with the term standardized industry coding system. The term standardized industry coding system in these temporary regulations is substantially similar to the term standardized industry code in the final regulations, except that it focuses on a coding system used by the withholding agent to classify account holders, rather than a specific code that is part of such a coding system. Additionally, and in response to comments, with respect to a preexisting obligation of an entity, the preexisting obligation documentary evidence rules have been liberalized by eliminating the requirement that the classification of the payee’s status be recorded by the withholding agent by the later of January 1, 2012, or six months after the date the withholding agent is formed or organized. C. Offshore Obligation and Offshore Account In response to comments stating that the definition of offshore obligation in the final regulations is unclear, and in order to harmonize chapters 4 and 61, these temporary regulations define offshore obligation by cross-reference to § 1.6049–5(c)(1) (which now uses the term offshore obligation instead of offshore account). These temporary F. Certain Foreign Insurance Companies Treated as U.S. Persons The final regulations treat a foreign insurance company that is not licensed to do business in any State and makes an election under section 953(d) as a foreign person. Comments requested that a foreign insurance company that has made an election under section 953(d) be treated as a U.S. person. A foreign insurance company that has VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 12813 made an election under section 953(d) is required to report on its U.S. income tax return the U.S. persons that own a direct or indirect interest in it. As previewed in Notice 2013–69, and in light of the existing reporting requirements applicable to these entities, the temporary regulations modify the definition of U.S. person to include a foreign insurance company that has made an election under section 953(d) and that either is not a specified insurance company or is a specified insurance company that is licensed to do business in any State. In such cases, the foreign insurance company will be required to continue to report on its owners in accordance with its election under section 953(d). A foreign insurance company that has made an election under section 953(d) and that is a specified insurance company that is not licensed to do business in any State will continue to be treated as a foreign person for purposes of chapter 4. G. Coordination of Definitions In response to comments requesting clarification and in order to coordinate the definitions in the final regulations with the definitions in chapters 3 and 61 and the FFI agreement, these temporary regulations add definitions of backup withholding, branch, chapter 4 withholding rate pool, exempt recipient, IGA, non-exempt recipient, reportable payment, and reporting Model 2 FFI and modify the definition of a U.S. branch treated as a U.S. person. In addition, the definitions of financial institution, limited branch, limited FFI, and substantial U.S. owner are modified to ensure coordination between the FFI agreement and these temporary regulations. H. Harmonization With IGAs These temporary regulations modify the definition of nonreporting IGA FFI to include (in addition to an FFI that is identified or treated as a nonreporting financial institution pursuant to a Model 1 or Model 2 IGA that is not a registered deemed-compliant FFI) an FFI that is a resident of, located in, or established in a Model 1 or Model 2 IGA jurisdiction, as the context requires, and that meets the requirements for certified deemed-compliant FFI status under the temporary regulations. Certain definitions (including the definition of retirement plan under § 1.1471–6(f)) are also modified to further harmonize these temporary regulations and the IGAs. E:\FR\FM\06MRR3.SGM 06MRR3 12814 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations III. Comments and Changes to § 1.1471– 2—Requirement To Deduct and Withhold Tax on Withholdable Payments to Certain FFIs IV. Comments and Changes to § 1.1471– 3—Identification of Payee A. Grandfathered Obligations— Definitions—Material Modification 1. Exceptions—U.S. Intermediary or Agent of a Foreign Person Comments indicated that outstanding life insurance contracts often contain a provision permitting the substitution of an insured and, as a result, cannot be a grandfathered obligation under the final regulations. Because such provisions are prevalent in existing life insurance contracts, the Treasury Department and the IRS have determined that life insurance contracts that have such a provision should be eligible for grandfathered status until the provision is invoked, but that any change or substitution of the insured under the contract should be treated as a material modification such that grandfathered status would no longer apply. These temporary regulations modify the final regulations accordingly. Comments requested that, in cases in which a withholding agent makes a withholdable payment to a U.S. insurance broker that is acting as an intermediary for or agent of a foreign insurer, the withholding agent be allowed to treat the U.S. insurance broker as the payee unless the withholding agent has reason to know that the U.S. insurance broker will not satisfy its withholding obligations. These temporary regulations modify the final regulations to adopt this comment. tkelley on DSK3SPTVN1PROD with RULES3 B. Grandfathered Obligations— Determination by Withholding Agent of Grandfathered Treatment The final regulations provide that a withholding agent is required to treat a modification of an obligation as material if the withholding agent knows or has reason to know that a material modification has occurred. The Treasury Department and the IRS received comments stating that it is difficult for a withholding agent to determine whether there has been a material modification of a grandfathered obligation absent a disclosure from the issuer of the obligation, and therefore that the receipt of such a disclosure should be the only instance in which a withholding agent is required to treat a modification of an obligation as material. In response to these comments, the temporary regulations modify the final regulations to provide that a withholding agent, other than the issuer of the obligation (or an agent of the issuer), is required to treat a modification of an obligation as material only if the withholding agent has actual knowledge that a material modification has occurred. One example of an event that will cause a withholding agent to have actual knowledge of a material modification is if the withholding agent receives a disclosure indicating that there has been or will be a material modification to the obligation. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 A. Payee Defined 2. Exceptions—U.S. Branch of Certain Foreign Banks or Foreign Insurance Companies A payment made to a U.S. branch of a participating FFI or a registered deemed-compliant FFI may be treated as a payment made to a U.S. person if the branch is treated as a U.S. person for purposes of withholding under chapter 4. The final regulations inadvertently omit a cross-reference to the regulations containing the requirements of U.S. branches to report information regarding certain U.S. owners of ownerdocumented FFIs and passive NFFEs. These temporary regulations add a cross-reference to § 1.1474–1(i)(1) and (2). B. Determination of Payee’s Status— Determination of Whether the Payment Is Made to a QI, WP, or WT In order to harmonize the rules in chapter 4 with those in chapters 3 and 61, these temporary regulations clarify that, with respect to a withholding agent’s determination of whether a payment is made to a QI, WP, or WT, a Form W–8IMY, ‘‘Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding,’’ provided by such entity must contain the entity’s QI–EIN, WP–EIN, or WT– EIN (as applicable). In addition, QIs, WPs, and WTs that have a GIIN must provide both a QI–EIN, QP–EIN, or WT– EIN and the GIIN to a withholding agent on the Form W–8IMY. PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 C. Rules for Reliably Associating a Payment With a Withholding Certificate or Other Appropriate Documentation 1. Requirements for Validity of Certificates—Withholding Certificate of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W–8IMY)—In General These temporary regulations clarify that, when a participating FFI or a registered deemed-compliant FFI has a branch (including a disregarded entity of the FFI) that both acts as an intermediary and is located outside of the FFI’s country of residence, the GIIN of the branch (or disregarded entity) must be disclosed on the withholding certificate. This change provides more detail on the use of GIINs issued to branches or disregarded entities of an FFI and that are used, in part, to identify an FFI to withholding agents. 2. Requirements for Validity of Certificates—Withholding Certificate of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W–8IMY)— Withholding Statement—Special Requirements for an FFI Withholding Statement Comments requested additional clarification to the final regulations concerning the requirements of an FFI withholding statement, specifically with regard to the use of a chapter 4 withholding rate pool identified on an FFI withholding statement to allocate a withholdable payment (or portion of a withholdable payment) to persons included within the chapter 4 withholding rate pool. Some of these clarifications have already been previewed in the draft FFI agreement, published in Notice 2013–69, and the final FFI agreement, published in Rev. Proc. 2014–13. These temporary regulations provide further clarification of FFI withholding statement requirements, including rules on when a chapter 4 withholding rate pool may be used by an FFI to allocate withholdable payments to a class of persons within a particular type of chapter 4 withholding rate pool. For example, if a participating FFI (including a reporting Model 2 FFI) that is a non-U.S. payor receives a withholdable payment on behalf of an account holder of a U.S. account, the participating FFI may include the account holder in a chapter 4 withholding rate pool of U.S. payees provided on an FFI withholding statement to the withholding agent to allocate the payment (or portion thereof) to the U.S. payee pool when the participating FFI reports the account holder under § 1.1471–4(d)(3) (Form E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations 8966, ‘‘FATCA Report,’’ reporting) or § 1.1471–4(d)(5) (election to report on Form 1099). As a result, the participating FFI need not provide payee specific information to the withholding agent with respect to the account holder, even if such information would typically be required under chapter 61, because it will be reported to the IRS under chapter 4. Additionally, reporting Model 1 FFIs and reporting Model 2 FFIs (without regard to whether such FFIs are U.S. or non-U.S. payors) may include certain recalcitrant account holders in a chapter 4 withholding rate pool of U.S. payees when such payments are not subject to withholding under chapters 3 or 4 or to backup withholding under section 3406 (for example, presumed U.S. nonexempt recipients). This rule was added to provide coordination between the various reporting regimes. For example, a reporting Model 2 FFI may include an account holder of a non-consenting U.S. account in a chapter 4 withholding rate pool of U.S. payees with respect to a withholdable payment that is not subject to withholding under chapters 3 or 4 or to backup withholding under section 3406 when the FFI reports the account holder as described in § 1.1471– 4(d)(6) for the year in which the payment is made. Finally, in order to clarify potential ambiguities, and as previewed in the draft and final FFI agreement, these temporary regulations provide that an FFI withholding statement should indicate the portion of the payment allocated to a pool of recalcitrant account holders that hold dormant accounts for which the FFI (and not the withholding agent) will withhold in escrow under the procedures described in § 1.1471–4(b)(6). Additionally, a participating FFI that elects to apply backup withholding under § 1.1471– 4(b)(3)(iii) to a withholdable payment that is also a reportable payment (as described under chapter 61) must also indicate the portion of the payment allocated to each recalcitrant account holder subject to backup withholding under section 3406 and report such payment to the IRS on Form 1099. A participating FFI will not be able to make the election to backup withhold under § 1.1471–4(b)(3)(iii) unless it is able to report on the payment and tax withheld consistent with the rules under chapter 61 and section 3406. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 3. Requirements for Validity of Certificates—Withholding Certificate of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W–8IMY)— Withholding Statement—Special Requirements for a Chapter 4 Withholding Statement and Exempt Beneficial Owner Withholding Statement An intermediary providing a withholding certificate for a withholdable payment under chapter 4 may also need to provide information under chapter 3 or chapter 61 if those chapters also apply to the payment the intermediary receives. These temporary regulations modify the final regulations to coordinate with chapters 3 and 61 by providing cross-references to the regulations under those chapters to clarify the information required to be included on a withholding statement when a withholdable payment is also reportable under chapters 3 or 61. 4. Applicable Rules for Withholding Certificates, Written Statements, and Documentary Evidence—Period of Validity Under chapter 4, withholding certificates are valid for three years, unless an exception permits indefinite validity (until a change in circumstances occurs). Beneficial owner withholding certificates provided by certain entities qualify for indefinite validity if the certificate is furnished with documentary evidence establishing the entity’s foreign status. Comments requested that section 501(c) entities be excluded from the requirement to furnish documentary evidence of foreign status as it is an undue burden on such entities. The Treasury Department and the IRS agree that it is appropriate to exclude these entities from the requirement to furnish documentary evidence of foreign status. In response to these comments and to coordinate with the rules under chapter 3, these temporary regulations crossreference the rules for indefinite validity of withholding certificates for section 501(c) entities in § 1.1441–1(e)(4)(ii)(B). 5. Applicable Rules for Withholding Certificates, Written Statements, and Documentary Evidence—Electronic Transmission of Withholding Certificate, Written Statement, and Documentary Evidence The final regulations provide that a withholding agent may accept withholding certificates, written statements, and documentary evidence supporting a payee’s claim of chapter 4 status electronically if the agent is able to verify the identity of the sender as the PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 12815 person named on the form. Comments requested that the verification rules be modified or eliminated to reduce the burden on the withholding agent. The Treasury Department and the IRS agree with the comments, but have determined that the electronic transmission requirements under chapter 4 should match those to be revised under chapter 3 in consideration of these comments. Therefore, these temporary regulations modify the final regulations by cross-referencing the electronic submission rules in § 1.1441– 1(e)(4)(iv)(C) which have been modified to adopt the change in a separate regulations package. These temporary regulations also make similar conforming changes to the final regulations with respect to requirements for an intermediary to electronically submit a withholding statement with a withholding certificate to a withholding agent. 6. Applicable Rules for Withholding Certificates, Written Statements, and Documentary Evidence—Acceptable Substitute Withholding Certificate— Non-IRS Form for Individuals In general, a withholding agent may substitute its own form for an official Form W–8 if the substitute form contains provisions that are substantially similar to the official form. The final regulations provide that if a substitute form is used in place of a W– 8BEN for individuals, the form must contain, among other things, the individual’s city and country of birth. The Treasury Department and the IRS received comments indicating that the inclusion of city of birth on this form would impose an undue burden on withholding agents. In response to comments, these temporary regulations remove the city of birth requirement. After further consideration, however, the temporary regulations require that the substitute form must contain the individual’s date of birth, without regard to whether a foreign tax identification number is provided. 7. Documentation Furnished on Account-by-Account Basis Unless Exception Provided for Sharing Documentation Within Expanded Affiliated Group—Preexisting Account The Treasury Department and the IRS received comments requesting that, for preexisting accounts, a withholding agent be allowed to rely on documentation held at a branch of the withholding agent or a branch of another expanded affiliated group member even if the withholding agent does not treat the accounts as consolidated obligations. The comments E:\FR\FM\06MRR3.SGM 06MRR3 12816 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations indicated that, in certain cases, the requirement to treat the accounts as consolidated obligations in order to share documentation is too burdensome. These temporary regulations modify the final regulations to allow a withholding agent, with respect to a preexisting account that it maintains, to rely on documentation furnished by a payee for a preexisting account held at another branch of the withholding agent or a branch of another expanded affiliated group member solely to determine the chapter 4 status of the account holder if: (i) The withholding agent obtains and reviews copies of such documentation supporting the chapter 4 status of the payee and (ii) the withholding agent has no reason to know that, when the documentation is obtained by the withholding agent, the documentation is unreliable or incorrect. D. Documentation Requirements To Establish Payee’s Chapter 4 Status 1. Reliance on Pre-FATCA Form W–8 The final regulations generally allow the withholding agent to rely on a preFATCA Form W–8 for international organizations. In order to clarify a potential ambiguity and to conform with chapter 3, these temporary regulations provide that reliance on a pre-FATCA Form W–8 is limited to international organizations as defined under chapter 3 and under section 7701(a)(18). tkelley on DSK3SPTVN1PROD with RULES3 2. Identification of U.S. Persons—In General Under chapter 4, a withholding agent must treat certain payees as U.S. persons. In order to clarify a potential ambiguity, these temporary regulations provide that foreign branches of U.S. persons and FFIs that have elected to be treated as U.S. persons under section 953(d) (despite the fact that such FFIs may not be U.S. persons for other purposes of chapter 4) should be treated as U.S. persons by a withholding agent if the withholding agent has a valid Form W–9, ‘‘Request for Taxpayer Identification Number and Certification,’’ from the payee or is required to presume that the payee is a U.S. person. This reduces burden because FFIs that have elected to be treated as U.S. persons under section 953(d) are generally treated as U.S. persons under chapter 3 and would need to provide a Form W–9 in connection with payments subject to chapter 3 withholding and reporting. 3. Identification of U.S. Persons— Preexisting Obligations The final regulations provide that a withholding agent (other than a VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 participating FFI or registered deemedcompliant FFI) that makes a payment with respect to a preexisting obligation may treat a payee as a U.S. person if it previously reviewed a Form W–9 or other documentation that established that the payee is a U.S. person and established that the payee is an exempt recipient for purposes of chapter 61. Comments from U.S. withholding agents indicated that the burden of documenting such payees that have previously been classified as U.S. persons is both significant and disproportionate to the benefits of obtaining documentation of U.S. status. In response to these comments, these temporary regulations modify the final regulations to allow withholding agents (other than a participating FFI or registered deemed-compliant FFI) to treat the payee of a payment with respect to a preexisting obligation as a U.S. person if the withholding agent has previously classified the payee as a U.S. person for purposes of chapters 3 or 61 and established (through documentation or the application of the rules in § 1.6049–4(c)(1)(ii)) that the payee is an exempt recipient for purposes of chapter 61. 4. Identification of Participating FFIs and Registered Deemed-Compliant FFIs The final regulations generally provide that a withholding agent may only treat a payee as a participating FFI or registered deemed-compliant FFI if the withholding agent receives an appropriate withholding certificate and a GIIN. The final regulations also provide a transitional rule for when withholding agents may treat payments made prior to January 1, 2017, with respect to a preexisting obligation, as made to a payee that is a participating FFI or registered deemed-compliant FFI. Under this rule the payee only needs to provide the withholding agent with its GIIN (which the withholding agent must verify) and indicate whether the FFI is a participating FFI or a registered deemed-compliant FFI. After further consideration and to coordinate with the rules under chapters 3 and 61, these temporary regulations modify the final regulations to provide that in such cases the payee must also have provided the withholding agent with a pre-FATCA Form W–8, as payees that receive U.S. source FDAP income would have already been required to provide a withholding certificate to a withholding agent. These temporary regulations further clarify the final regulations such that, when a participating FFI or a registered deemed-compliant FFI has a branch (including a disregarded entity of the FFI) that is located outside of the PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 FFI’s country of residence and receives the payment, the GIIN of the branch (or disregarded entity) must be disclosed on the withholding certificate. 5. Identification of Excepted NFFEs— Identifying a Direct Reporting NFFE, Identifying a Sponsored Direct Reporting NFFE, and Identification of an Excepted Inter-Affiliate FFI These temporary regulations provide that direct reporting NFFEs and sponsored direct reporting NFFEs qualify as excepted NFFEs. Consistent with this change, these temporary regulations add to the final regulations identification rules with respect to direct reporting NFFEs and sponsored direct reporting NFFEs. Additionally, under the final regulations, a financial institution does not include certain foreign entities that are considered excepted inter-affiliate FFIs. One of the requirements for such an entity is that it does not receive payments from, or hold an account with, a withholding agent other than a member of its expanded affiliated group. Comments requested that such entities be permitted to hold bank accounts with certain non-U.S. persons outside of the expanded affiliated group. The temporary regulations modify the final regulations with respect to an excepted inter-affiliate FFI to allow such FFIs to hold depository accounts to pay for expenses in the country in which the FFI is operating and that are maintained within the same country. Accordingly, conforming changes have also been made by these temporary regulations to add identification rules with respect to an excepted inter-affiliate FFI. An identification rule was not necessary under the final regulations because an excepted inter-affiliate FFI was not allowed to hold an account with a withholding agent other than a member of its expanded affiliated group. E. Standards of Knowledge 1. GIIN Verification The final regulations provide that, under certain circumstances, a withholding agent has reason to know that a payee is not a financial institution. To clarify a potential ambiguity, these temporary regulations provide that a withholding agent has reason to know that a withholdable payment is being made to a limited branch of a participating or registered deemed-compliant FFI when it is directed to make payment to an address of the FFI in a jurisdiction other than the address of the participating FFI or registered deemed-compliant FFI (or branch of such FFI) that is identified as E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations the FFI (or branch of such FFI) that is supposed to receive the payment. These temporary regulations further provide special rules regarding a direct reporting NFFE and a sponsored direct reporting NFFE’s claim of chapter 4 status. tkelley on DSK3SPTVN1PROD with RULES3 2. Reason to Know Under chapter 4, a withholding agent may not rely on an FFI’s claim of chapter 4 status if the withholding agent has reason to know that such claim is unreliable or incorrect. Under the final regulations, the withholding agent is required to review information used to satisfy AML due diligence requirements in determining whether a claim of chapter 4 status was unreliable or incorrect. In response to comments, these temporary regulations modify the final regulations such that when a withholding agent has classified a person by business type for AML due diligence or another regulatory purpose (other than for a tax purpose) that requires the withholding agent to periodically monitor or update the classification, the withholding agent will have reason to know that information contained in its account files conflicts with the person’s claim of chapter 4 status only if the classification recorded by the withholding agent is inconsistent with the chapter 4 status claimed. Comments also requested additional time to review the information collected for AML due diligence because it is typically gathered and stored by a different department or division of the withholding agent and is not linked to the customers’ account files. These temporary regulations adopt this comment and allow 30 days to review information collected for AML due diligence for new accounts. The final regulations also provide due diligence requirements with respect to U.S. indicia of account holders for payments made with respect to preexisting obligations. After further consideration, the temporary regulations modify these provisions such that the U.S. indicia-based due diligence requirements generally do not apply to a withholding agent that has previously documented an account for purposes of chapter 3 or chapter 61. However, under the temporary regulations, a withholding agent that applies the limits on reason to know described in chapter 3 or chapter 61 must review for U.S. indicia any additional documentation upon which the withholding agent is relying to determine the chapter 4 status of the person. A cross-reference in § 1.1471– 3(e)(4)(viii)(A)(4) has also been corrected. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 F. Presumptions Regarding Chapter 4 Status of the Person Receiving the Payment in the Absence of Documentation The Treasury Department and the IRS intend for the chapter 4 presumption rules for determining the status of a person as an individual or an entity and as U.S. or foreign to be identical to the presumption rules in chapters 3 and 61. To ensure coordination of these rules, these temporary regulations modify the final regulations by cross-referencing the presumption rules under chapter 3, rather than restating the rules in detail. This change ensures coordination between the presumption rules in chapter 3 and chapter 4 in the event that the chapter 3 presumption rules are modified. V. Comments and Changes to § 1.1471– 4—FFI Agreement A. Withholding Requirements 1. Satisfaction of Withholding Requirements—Election To Withhold Under Section 3406 As announced in Notice 2013–69, these temporary regulations modify the final regulations to coordinate withholding under chapter 4 and backup withholding under section 3406. Under § 1.1474–6(f), a participating FFI that makes a withholdable payment that is also a reportable payment to a recalcitrant account holder is not required to apply backup withholding under section 3406 if it withholds on the payment under chapter 4. A reportable payment that is not subject to withholding under chapter 4 remains subject to backup withholding under section 3406. Additionally, these temporary regulations provide under § 1.1471–4(b)(3)(iii) that a participating FFI may satisfy its chapter 4 withholding obligations for a withholdable payment that is a reportable payment made to a recalcitrant account holder that is a U.S. non-exempt recipient subject to backup withholding if the participating FFI elects for backup withholding under section 3406 to apply (rather than withholding under chapter 4 with regard to such payees). A participating FFI will not be able to make the election to backup withhold under § 1.1471– 4(b)(3)(iii) unless it is able to report on the payment and tax withheld consistent with the rules under chapter 61 and section 3406. 2. Special Rule for Dormant Accounts With respect to dormant accounts of recalcitrant account holders, the final regulations permit a participating FFI to PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 12817 escrow amounts withheld under chapter 4 rather than deposit such amounts with the IRS. To coordinate with the chapter 3 and 61 regulations which would have required such amounts to be withheld upon, the temporary regulations limit this allowance to amounts not otherwise subject to withholding under chapter 3 or backup withholding under section 3406. In addition, a participating FFI may not delegate its responsibility to escrow the withheld tax to the withholding agent from which it receives the payment. These modifications are intended to harmonize the treatment of such escrowed amounts under chapters 3 and 4 and are consistent with the provisions of the FFI agreement. B. Due Diligence for the Identification and Documentation of Account Holders and Payees 1. Identification and Documentation Procedure for Preexisting Individual Accounts—Specific Identification and Documentation Procedures for Preexisting Individual Accounts—U.S. Indicia and Relevant Documentation Rules—Documentation to be Retained Upon Identifying U.S. Indicia— Standing Instructions to Pay Amounts The final regulations provide a cure for standing instructions to pay amounts to an account maintained in the United States for an account holder that differs from the cure provided under chapter 3. These temporary regulations modify the final regulations to provide an option to follow the chapter 3 rules by adding a cross-reference to § 1.1441–7(b)(12). 2. Identification and Documentation Procedure for Preexisting Individual Accounts—Specific Identification and Documentation Procedures for Preexisting Individual Accounts— Exception for Preexisting Individual Accounts Previously Documented as Held by Foreign Individuals The final regulations provide that a participating FFI that has previously established an account holder’s status as foreign in order to fulfill its reporting obligations as a U.S. payor under chapter 61 is not required to perform an electronic search or enhanced review. Comments requested that this exception be extended to the identification and documentation performed by an agent of a participating FFI that is a U.S. payor. To address these comments and to further coordinate between the IGAs and the regulations, these temporary regulations modify the final regulations to adopt this comment. E:\FR\FM\06MRR3.SGM 06MRR3 12818 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations C. Account Reporting tkelley on DSK3SPTVN1PROD with RULES3 1. Reporting Requirements In General— Financial Institution Required to Report an Account—Special Reporting of Account Holders of Territory Financial Institutions Section 1.1471–4(d)(2)(ii)(B) provides a special reporting rule for participating FFIs that maintain an account held by a territory financial institution acting as an intermediary. If such territory financial institution agrees to be treated as a U.S. person, the participating FFI is not required to report under § 1.1471–4 with respect to the account holders of the territory financial institution because such entities will report directly to the IRS. However, if the territory financial institution does not agree to be treated as a U.S. person, the final regulations require the participating FFI to report under § 1.1471–4 with respect to each account holder of the territory financial institution that receives a withholdable payment (or portion thereof) and that is a specified U.S. person or substantial U.S. owner of a foreign entity (indirect account holders). The final regulations are ambiguous about how a participating FFI could report on these indirect account holders. To provide more clarity with respect to the reporting requirements and to provide additional flexibility, the temporary regulations give participating FFIs the option of reporting on these indirect account holders on either Form 8966 or Form 1099. Additionally, these temporary regulations clarify the scope of information that must be reported by a participating FFI on Form 8966 or Form 1099 with respect to account holders of a territory financial institution that has not elected to be treated as a U.S. person. 2. Reporting Requirements In General— Financial Institution Required to Report an Account—Requirement To Identify the GIIN of a Branch That Maintains an Account The final regulations provide that a participating FFI may elect to comply with its obligation to report under § 1.1471–4(d)(3) or § 1.1471–4(d)(5) on a branch-by-branch basis. After further consideration, the temporary regulations provide that a participating FFI may report under § 1.1471–4(d)(3) or § 1.1471–4(d)(5) with respect to all of the participating FFI’s U.S. accounts and recalcitrant accounts, or separately with respect to any clearly identified group of accounts (such as by line of business or the location of where the account is maintained). Consistent with the final regulations, a participating FFI VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 must include the GIIN assigned to the participating FFI or its branch (including a disregarded entity of the FFI), as applicable, to identify the jurisdiction of the FFI or branch (or disregarded entity) that maintains the accounts subject to reporting. 3. Reporting Requirements In General— Financial Institution Required To Report an Account—Reporting by Participating FFIs and Registered Deemed-Compliant FFIs (Including QIs, WPs, WTs, and Certain U.S. Branches Not Treated as U.S. Persons) for Accounts of Nonparticipating FFIs (Transitional) The final regulations provide transitional reporting requirements for a participating FFI or registered deemedcompliant FFI making a payment of a foreign reportable amount to a nonparticipating FFI. Under § 1.1474– 1(d)(4)(iii)(C) of the final regulations, a participating FFI is required to report the aggregate amount of foreign reportable amounts paid to each payee that is a nonparticipating FFI, even when such payments are not associated with a financial account. The final regulations define foreign reportable amount as a payment of FDAP income that would be a withholdable payment if paid by a U.S. person. Comments requested changes and clarification with respect to the transitional rule because it was unclear regarding the scope of payments subject to reporting and because of the cost of modifying systems to comply with this reporting rule. These temporary regulations continue to provide transitional reporting rules, but, consistent with Notice 2013–69, modify it to address these comments. First, the temporary regulations clarify that reporting will be required only with respect to nonparticipating FFIs that maintain an account with the participating FFI. Second, these temporary regulations modify the definition of foreign reportable amount to mean foreign source payments as described in § 1.1471–4(d)(4)(iv) paid to or with respect to each such account. Third, the temporary regulations provide that instead of reporting only foreign reportable amounts paid to such nonparticipating FFIs, a participating FFI may report all payments made with respect to the account (not only foreign reportable amounts). Fourth, the temporary regulations provide that, when a participating FFI is prohibited under domestic law from reporting on a specific payee basis without consent from the nonparticipating FFI and the participating FFI has been unable to obtain such consent, it may report the aggregate number of accounts held by PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 all such non-consenting nonparticipating FFIs and the aggregate amount of foreign reportable amounts paid with respect to such accounts. These temporary regulations also modify the final regulations to provide that the information required under the transitional reporting rule will be provided on Form 8966, not Form 1042– S, ‘‘Foreign Person’s U.S. Source Income Subject to Withholding,’’ and accordingly move the transitional rule to § 1.1471–4(d)(2)(ii)(F) and delete a residual paragraph in § 1.1474– 1(d)(3)(iii) and renumber (d)(3)(iv) through (d)(3)(x). These changes were previously announced in Notice 2013– 69 and are also included in the final FFI agreement. Finally, the temporary regulations require participating FFIs to retain account statements for accounts maintained for such nonparticipating FFIs. 4. Reporting Requirements In General— Special U.S. Account Reporting Rules for U.S. Payors—Special Reporting Rule for U.S. Payors Other Than U.S. Branches The final regulations provide that a participating FFI that is a U.S. payor (other than a U.S. branch) is treated as satisfying its chapter 4 reporting obligations with respect to accounts that it is required to treat as U.S. accounts or accounts held by owner-documented FFIs if it reports the information required under chapter 61 and the information described under § 1.1471– 4(d)(5)(ii) (requiring additional information on accounts held by specified U.S. persons, U.S. owned foreign entities that are NFFEs, and owner-documented FFIs). In response to comments, the temporary regulations modify the final regulations to allow a participating FFI that is a U.S. payor to satisfy its chapter 4 reporting obligations with respect to its U.S. accounts or accounts held by ownerdocumented FFIs either by reporting the information described in chapter 61 and § 1.1471–4(d)(5)(ii) or (iii) (the information reporting would be made on Form 1099 for U.S. accounts that are not U.S. owned NFFEs), as provided in the final regulations, or by reporting the information described in § 1.1471– 4(d)(3)(ii), (d)(3)(iii) or (d)(3)(iv) (the information reporting would be made on Form 8966). A participating FFI that reports the information described in § 1.1471–4(d)(3)(ii), (d)(3)(iii) or (d)(3)(iv) and that is required to report payments under chapter 61 is not relieved of that obligation. E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations 5. Reporting Requirements in General— Special U.S. Account Reporting Rules for U.S. Payors—Special Reporting Rules for U.S. Branches Not Treated as U.S. Persons The final regulations do not include a rule for reporting by a U.S. branch of a registered deemed-compliant FFI or limited FFI that is not treated as a U.S. person. To correct this oversight, these temporary regulations add new § 1.1471–4(d)(2)(iii)(C) to provide that such a U.S. branch is treated as having satisfied its reporting requirements under chapter 4 if it reports the information required under chapter 61 with respect to account holders of accounts that the U.S. branch is required to treat as U.S. accounts or accounts held by owner-documented FFIs. 6. Reporting on Recalcitrant Account Holders—Extensions in Filing In response to comments, the temporary regulations modify the final regulations to provide an automatic 90day extension of time in which to file Form 8966 with respect to recalcitrant account holders. An additional 90-day hardship extension may be provided in certain circumstances. These revisions are consistent with the extensions of time already permitted for filing Form 8966 with respect to U.S. accounts. tkelley on DSK3SPTVN1PROD with RULES3 7. Treatment of a Disregarded Entity In response to comments and in order to address a potential ambiguity in the final regulations about whether a disregarded entity that is owned by an FFI is treated as a branch of an FFI, these temporary regulations clarify that the term branch with respect to an FFI includes an entity that is disregarded as an entity separate from the FFI. This clarification was previewed in the draft FFI agreement which was published in Notice 2013–69. These temporary regulations make additional changes throughout the final regulations to further clarify the treatment of a disregarded entity when such an entity is treated as a branch of an FFI. For example, the GIIN verification procedures that apply with respect to a branch of an FFI also apply with respect to a disregarded entity that is owned by an FFI. Additionally, a disregarded entity that is owned by an FFI may be treated as a limited branch if the disregarded entity is unable to comply with the terms of an FFI agreement with respect to accounts that it maintains, and the reason to know standards that apply to withholdable payments made to a branch of a participating or registered deemed-compliant FFI also VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 apply to withholdable payments made to a disregarded entity that is owned by such an FFI. D. Expanded Affiliated Group Requirements The final regulations require that, in general, each FFI within an expanded affiliated group must be either a participating FFI or a registered deemed-compliant FFI. Comments noted that some FFIs within an expanded affiliated group will have the status of an exempt beneficial owner and requested that the regulations be modified to allow for such FFIs to be excluded from this requirement. The temporary regulations modify the final regulations to adopt this comment. E. Verification—IRS Review of Compliance The final regulations allow the IRS to request additional information in its review of Form 8966. The temporary regulations further allow the IRS to request additional information to determine an FFI’s compliance with the applicable FFI agreement and to assist the IRS with its review of account holder compliance with tax reporting requirements. F. Event of Default The final regulations define events of default under an FFI agreement. This definition includes the failure to significantly reduce, over a period of time, the number of recalcitrant account holders and payees that are nonparticipating FFIs. Comments were made that this language was ambiguous and could imply an event of default, for example, even in circumstances in which an FFI consistently complies with the regulatory due diligence procedures. Accordingly, in response to the comments, these temporary regulations modify the final regulations to provide that this event of default consists of a failure to significantly reduce, over a period of time, the number of account holders or payees that the participating FFI is required to treat as recalcitrant account holders or nonparticipating FFIs as a result of the participating FFI failing to comply with the due diligence procedures for the identification and documentation of account holders and payees. VI. Comments and Changes to § 1.1471– 5—Definitions Applicable to Section 1471 A. U.S. Accounts—Account Holder—in General; Grantor Trust The definition of account holder in the final regulations does not treat a grantor trust as an account holder to the PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 12819 extent that the grantor is treated as owning the trust or all the assets in the trust under sections 671 through 679, regardless of whether the grantor is a U.S. or foreign person. If such grantor is a foreign person and the beneficiary of the trust is a U.S. person, the grantor is treated as the account holder and consequently, the account is a non-U.S. account and no beneficiary that is a specified U.S. person is treated as having an interest in the portion of the trust owned by the grantor. Therefore, the specified U.S. person is not an account holder and would not be reported even though such U.S. person might be a substantial U.S. owner of the foreign grantor trust. Further, for purposes of determining whether a foreign grantor trust has a substantial U.S. owner (and is a U.S. account), the final regulations provide that a substantial U.S. owner is any specified U.S. person treated as owning any portion of the grantor trust under sections 671 through 679, and a trust owned only by U.S. grantors is not treated as having a beneficiary that is a specified U.S. person. Thus, in contrast to the account holder rule, the test for determining a substantial U.S. owner of a trust is made without regard to the treatment of the settlor of the trust as a foreign grantor under sections 671 through 679. In response to requests for further clarification, these temporary regulations remove the grantor trust rule in the definition of account holder in the final regulations so that the general rule for treating an entity as an account holder will apply to treat a grantor trust as the account holder. Accordingly, a grantor trust that holds an account must provide documentation of its chapter 4 status as a FFI or NFFE. This change harmonizes the treatment of a grantor trust as an account holder for purposes of the chapter 4 withholding provisions with the provisions in chapters 3 and 61, which treat a grantor trust, rather than the grantor, as the payee. B. Financial Accounts—Value of Interest Determined, Directly or Indirectly, Primarily by Reference to Assets That Give Rise (or Could Give Rise) to Withholdable Payments, and Return Earned on the Interest (Including Upon a Sale, Exchange, or Redemption) Determined, Directly or Indirectly, Primarily by Reference to one or More Investment Entities or Passive NFFEs While financial accounts generally include equity or debt interests (other than regularly traded interests) in investment entities, financial accounts include only certain enumerated categories of interests in holding companies, treasury centers, and other E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12820 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations financial institutions. Among the enumerated categories are certain equity and debt interests whose return or value is determined, directly or indirectly, primarily by reference to assets that give rise (or could give rise) to withholdable payments. The final regulations provide that a debt interest is considered to have a value determined primarily by reference to such assets if the debt interest is secured by the assets of a U.S. person. The final regulations provide that an equity interest is considered to have a value determined primarily by reference to such assets if the amount payable upon redemption of the equity interest is secured primarily by assets that give rise (or could give rise) to withholdable payments. A similar provision under another enumerated category treating certain interests in holding companies and treasury centers as financial accounts (see §§ 1.1471– 5(b)(1)(iii)(B)(2) and (3)) also applies to a debt interest secured by the assets of one or more investment entities described in §§ 1.1471–5(e)(4)(i)(B) or (C) or one or more passive NFFEs that are members of the entity’s expanded affiliated group (collectively, the secured equity and debt provisions). Comments have suggested that these provisions are overbroad because it is questionable whether the value of, or return earned on, a debt or equity interest is determined primarily by reference to assets of a U.S. person solely because the debt or equity interest is secured by such assets. In response to these comments, these temporary regulations modify the final regulations by eliminating the secured equity or debt provisions. The facts and circumstances may nonetheless lead to a conclusion that the value of a secured equity or debt interest is determined, directly or indirectly, primarily by reference to assets giving rise to withholdable payments (for example, when the amount payable as interest on, or upon redemption or retirement of, a debt interest is determined primarily by reference to the assets securing the debt interest). In addition, the final regulations provide that a debt interest is considered to have a value determined, directly or indirectly, primarily by reference to assets that give rise to withholdable payments if amounts payable as interest on, or upon redemption or retirement of, the debt are determined primarily by reference to the profits or assets of a U.S. person. This provision inadvertently did not address whether debt interests with amounts payable by reference to equity interests in a U.S. person are debt interests whose return or value is VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 determined primarily by reference to assets that give rise (or could give rise) to withholdable payments. To correct this omission, the temporary regulations modify the final regulations to include a reference to equity interests in, as well as profits and assets of, a U.S. person. C. Definition of Financial Institution 1. In General The final regulations provide that the definition of financial institution includes a holding company or treasury center that is part of an expanded affiliated group that includes a depository institution, custodial institution, insurance company, or investment entity. Comments noted that the definition, with respect to an insurance company, should be limited to a specified insurance company which is itself a financial institution. These temporary regulations correct the final regulations to treat a holding company or treasury center as a financial institution if it is part of an expanded affiliated group that includes a specified insurance company. 2. Holding Financial Assets for Others as a Substantial Portion of Its Business—Income Attributable To Holding Financial Assets and Related Financial Services The final regulations provide that an entity is a custodial institution if at least 20 percent of the entity’s gross income is attributable to holding financial assets for others and related financial services. The final regulations define income attributable to holding financial assets to include, among other things, fees for providing financial advice. As a result, an entity could qualify as a custodial institution under the final regulations even if the entity’s sole business is to provide financial advice to clients and it does not conduct any activities as a custodian or broker. Comments indicated that this definition is overly broad and could cause entities that do not hold financial assets and therefore have no financial accounts to be treated as custodial institutions. In response, these temporary regulations modify the final regulations to define income attributable to holding financial assets to include fees for providing financial advice with respect to financial assets held in (or to be held in) custody by the entity. 3. Investment Entity—Examples The final regulations generally provide that an investment entity includes an entity whose gross income is primarily attributable to investing, reinvesting, or trading in financial assets PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 and that is managed by another entity that primarily conducts as a business certain investment-related activities. Examples 7 and 8 in § 1.1471–5(e)(4)(v) are clarified such that a foreign introducing broker does not manage an entity if it does not have discretionary authority to manage its clients’ assets. However, even though these facts have been added to Examples 7 and 8, the results in Examples 7 and 8 remain the same. In Example 7, even when the introducing broker has discretionary authority to act unilaterally on its client’s behalf with respect to its client’s investments, because the introducing broker is an individual, the entity that she manages would not be treated as an investment entity under § 1.1471– 5(e)(4)(i)(B). By comparison, because the introducing broker in Example 8 is an entity that primarily conducts as a business certain investment related activities, the entity managed by the introducing broker would be treated as an investment entity under § 1.1471– 5(e)(4)(i)(B). 4. Exclusions—Excepted Nonfinancial Group Entities—In General The final regulations provide that a holding company, treasury center, or captive finance company will not qualify as an excepted nonfinancial group entity if, among other things, it is formed in connection with or availed of certain arrangements or investment vehicles. Comments requested additional guidance on what it means to be ‘‘formed in connection with or availed of.’’ The temporary regulations modify the final regulations such that any entity that existed at least six months prior to its acquisition by an arrangement or investment vehicle and which, prior to the acquisition, regularly conducted activities in the ordinary course of business will not be considered to be formed in connection with or availed of such an arrangement or investment vehicle, in the absence of other facts suggesting the existence of an investment strategy. 5. Exclusions—Excepted Nonfinancial Group Entities—Nonfinancial Group For purposes of determining whether an expanded affiliated group is a nonfinancial group, the final regulations provide an income test for the three-year period preceding the year for which the determination is made. Comments requested: (i) That this exclusion also be applicable if the expanded affiliated group has been in existence for less than three years and (ii) that a group would qualify if it meets the income test over an average of three years (rather than having to meet the test in each of the E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations three preceding years). The Treasury Department and the IRS have determined that the exclusion should be available to expanded affiliated groups that have been in existence for less than three years, and these temporary regulations modify the final regulations accordingly. The Treasury Department and the IRS continue to believe, however, that only expanded affiliated groups that meet the income test in each year of the testing period should qualify for the exclusion. In order to provide further clarification when determining the percentage of income or assets of the group that produce or are held for the production of passive income, these temporary regulations also modify the final regulations by excluding transactions between members of the expanded affiliated group. In addition, these temporary regulations provide guidance on measuring the value of such assets. tkelley on DSK3SPTVN1PROD with RULES3 6. Exclusions—Excepted Nonfinancial Group Entities—Holding Company Comments requested that, for purposes of determining if a holding company is part of an excepted nonfinancial group, a trust or partnership that owns all the stock of a common parent corporation of an expanded affiliated group be eligible for treatment as a holding company and member of an excepted nonfinancial group. Otherwise, such entities are not treated as part of the expanded affiliated group and cannot qualify for such exception. These temporary regulations modify the final regulations to allow a partnership or other non-corporate entity to be treated as a holding company (and therefore as a potential member of an excepted nonfinancial group) if substantially all the activities of such partnership (or other entity) consist of holding more than 50 percent of the voting power and value of the stock of one or more common parent corporation(s) of one or more expanded affiliated group(s). If a partnership or other non-corporate entity owns more than 50 percent of the voting power and value of the stock of two or more corporations and each such corporation has its own subsidiaries such that it is the common parent corporation of an expanded affiliated group, each common parent corporation’s expanded affiliated group will be treated as a separate such group for purposes of applying the rules of this section unless the non-corporate entity is treated as the common parent entity of the entire expanded affiliated group in accordance with § 1.1471–5(i)(10). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 7. Exclusions—Excepted Nonfinancial Group Entities—Treasury Center Comments were received that the definition of a treasury center in the final regulations is too narrow in that an entity that manages working capital but does not otherwise invest or trade may not satisfy this definition. For example, a group’s cash pooling entity may be in a net deficit position and therefore may not be considered to be investing or trading in financial assets. In addition, with respect to the financing activities of such a vehicle, the final regulations could be read to limit situations in which an entity that is itself equity funded can qualify as a treasury center. In response to these comments, the temporary regulations modify the final regulations to clarify that an entity that manages the working capital of an expanded affiliated group (or any member thereof) will not cease to qualify as a treasury center solely because it has no investments and does not trade in financial assets. Further, the temporary regulations clarify that equity-funded affiliates may qualify as treasury centers. 8. Exclusions—Excepted Inter-Affiliate FFI Under the final regulations, a financial institution does not include certain foreign entities that are considered excepted inter-affiliate FFIs. One of the requirements for such an entity is that it does not receive payments from, or hold an account with, a withholding agent other than a member of its expanded affiliated group. Comments requested that such entities be permitted to hold bank accounts with certain non-U.S. persons outside of the expanded affiliated group. The temporary regulations modify the final regulations to allow such entities to hold depository accounts maintained in the country in which the entity is operating to pay for expenses in that same country. D. Deemed-Compliant FFIs 1. Registered Deemed-Compliant FFIs— Restricted Funds Under chapter 4, interests in a restricted fund that are not issued directly by the fund can only be sold through distributors that are participating FFIs, registered deemedcompliant FFIs, nonregistering local banks, or restricted distributors. In response to comments, even though these temporary regulations do not eliminate the requirement of the restricted fund to terminate its agreement with any distributor that has a change in status that causes it to no PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 12821 longer qualify to be a distributor and redeem or transfer all debt and equity interests of the FFI issued through that distributor, these temporary regulations do remove the requirement that the restricted fund certify to the IRS. 2. Registered Deemed-Compliant FFIs— Qualified Credit Card Issuers and Servicers Comments were received that an FFI that issues credit cards may form a separate entity that services the credit cards. Under the final regulations, such an entity could be an FFI, but would not be treated as a registered deemedcompliant FFI because it is not an issuer of credit cards, even though such FFI would otherwise qualify for registered deemed-compliant FFI status. Pursuant to these comments, the temporary regulations expand the registered deemed-compliant FFI category to include qualified credit card servicers. 3. Registered Deemed-Compliant FFIs— Sponsored Investment Entities and Controlled Foreign Corporations Under the final regulations, an FFI remains liable for its withholding and reporting obligations under chapter 4 even if a sponsoring entity performs these responsibilities on behalf of such FFI. In response to comments, these temporary regulations modify the final regulations to clarify that a sponsoring entity will not be jointly and severally liable for the sponsored FFI’s obligations unless the sponsoring entity is also a withholding agent that is separately liable for such obligations. 4. Certified Deemed-Compliant FFIs— Nonregistering Local Bank The final regulations provide that, in order to be treated as a nonregistering local bank, an FFI’s business must consist primarily of receiving deposits from and making loans to unrelated retail customers. Comments noted that the final regulations do not provide a definition of unrelated for this and other purposes. In addition, it may be unclear how the final regulations would apply to a member-owner of a credit union or similar cooperative credit organization. In order to address these concerns, and consistent with the IGAs, these temporary regulations modify the final regulations such that a credit union or similar cooperative credit organization will be eligible for treatment as a nonregistering local bank if its business consists primarily of receiving deposits from and making loans to members, provided that no such member has a greater than five percent interest in such credit union or cooperative credit organization. For purposes of E:\FR\FM\06MRR3.SGM 06MRR3 12822 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations determining what unrelated means for retail customers of a bank, as well as for purposes of aggregating the interests of related members of a credit union or cooperative credit organization under the five percent test, the temporary regulations provide that the rules of section 267(b) apply. 5. Certified Deemed-Compliant FFIs— Limited Life Debt Investment Entities (Transitional) Comments were received stating that most securitization investment vehicles could not meet the requirements in the final regulations for a limited life debt investment entity (LLDIE) to be treated as certified deemed-compliant FFIs. To accommodate industry practices and expand the types of securitization vehicles that will qualify as a LLDIE, these temporary regulations make a number of significant changes to the definition of LLDIE in the final regulations. These changes include: (i) Removing the requirement that a LLDIE’s organizational documents cannot be amended without the consent of all of its investors; (ii) clarifying that a LLDIE issues debt or equity interests under a trust indenture or similar agreement; (iii) extending the category so that it applies to a LLDIE that issued all of its interests on or before January 17, 2013 (for example, the date that the final regulations were filed); (iv) allowing a LLDIE to be treated as a certified deemed-compliant FFI until the LLDIE liquidates or terminates; (v) removing the requirement that investors be unrelated to each other; and (vi) expanding the types of assets that the entity can hold and still qualify as a LLDIE. tkelley on DSK3SPTVN1PROD with RULES3 6. Certified Deemed-Compliant FFIs— Investment Advisors and Investment Managers In response to comments, and to coordinate with the IGAs, these temporary regulations add certain investment advisors and investment managers that do not maintain financial accounts as entities eligible for treatment as certified deemed-compliant FFIs. Accordingly, these temporary regulations also add identification rules with respect to such investment advisors and investment managers. 7. Related Persons Certain provisions in the final regulations (such as §§ 1.1471– 3(c)(9)(ii)(B); 1.1471–5(f)(2)(i)(B); 1,1471–5(f)(4)(i); and 1.1471–5(i)(6)(i)) use the term related or unrelated to describe a relationship between parties. Comments noted that the final regulations do not define what is meant VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 by related. These temporary regulations generally amend the relevant paragraphs of the final regulations to provide that parties are related for purposes of the relevant paragraph when such parties have a relationship described in section 267(b). E. Expanded Affiliated Group Comments requested that a LLDIE not be considered a member of an expanded affiliated group as a result of any member of such expanded affiliated group owning interests in such entity. These comments indicated that because interests in these entities are generally held through a clearing organization, these entities often would not be able to determine the identity of their investors. In addition, comments noted the burden of monitoring ownership changes for the purpose of determining when to include or exclude a LLDIE as a member of an expanded affiliated group, and the potential adverse consequences to the rest of the group in the event that any such entity is not properly included. Comments also stated that the definition of expanded affiliated group in the final regulations presents challenges with respect to non-corporate entities that are within a chain of commonly controlled corporations. For example, the final regulations do not clearly indicate whether constructive ownership rules apply to determine whether a noncorporate entity is controlled by a member of the group. In response to these comments, these temporary regulations modify the definition of expanded affiliated group to exclude from the group pre-existing LLDIEs (for example, a LLDIE that issued all of its interests, and was in existence, on or before January 17, 2013) and clarify the ownership rules applicable to corporate and non-corporate members of the group. These temporary regulations also permit (but do not require) a noncorporate entity to be treated as the common parent entity of the expanded affiliated group. VII. Comments and Changes to Section 1.1471–6—Payments Beneficially Owned by Exempt Beneficial Owners— Foreign Central Bank of Issue Comments were received stating that the functions of a foreign central bank of issue may be performed by an institution other than a bank. In response to these comments and in order to coordinate the regulations with the IGAs, these temporary regulations modify the final regulations to include an institution performing such functions within the definition of a foreign central bank of issue. In addition, comments stated that a foreign central bank of PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 issue may earn income from cash as well as securities. Accordingly, the temporary regulations allow a foreign central bank of issue to be a beneficial owner with respect to income earned on cash. Comments also stated that some foreign central banks maintain depository accounts solely for their employees. These comments requested that such employee-only accounts not be treated as accounts held in connection with commercial activities. The Treasury Department and the IRS believe there is a low risk of tax evasion with respect to such employee accounts, and that the burden on central banks to register as an FFI for these activities and provide documentation as intermediaries would be disproportionately high. Therefore, the temporary regulations modify the final regulations to exclude maintaining such accounts from the definition of commercial activities. VIII. Comments and Changes to Section 1.1472–1—Withholding on NFFEs A. Exceptions—Payments to an Excepted NFFE—Active NFFEs Comments noted that fiscal year financial statements may not be used in determining whether an entity is an active NFFE. These comments noted that preparing calendar year financial statements for entities using noncalendar fiscal years would cause significant burdens without commensurate benefits. Therefore, these comments suggested that an entity be able to use either its calendar or fiscal year in analyzing whether the entity meets the active NFFE test. Comments further suggested that an entity be allowed to use financial statements based on foreign accounting principles. These comments have been adopted and these temporary regulations modify the final regulations accordingly. B. Exceptions—Payments Made to an Excepted NFFE After further consideration, these temporary regulations provide that QIs, WPs, and WTs are treated as excepted NFFEs. C. Exceptions—Payments to an Excepted NFFE—Direct Reporting NFFEs and Sponsored Direct Reporting NFFEs These temporary regulations provide that excepted NFFE includes a NFFE that is a direct reporting NFFE or sponsored direct reporting NFFE. A direct reporting NFFE is a NFFE that elects to report on Form 8966 directly to the IRS certain information about its E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations direct or indirect substantial U.S. owners (or it may be required to certify on Form 8966, or in such other manner as the IRS may prescribe, that it does not have any such substantial U.S. owners) in lieu of providing such information to withholding agents or participating FFIs with which the NFFE holds a financial account. A direct reporting NFFE is required to register with the IRS to obtain a GIIN and to agree to comply with the provisions in the regulations regarding reporting information about its substantial U.S. owners. In general, withholding agents and participating FFIs will identify and document a direct reporting NFFE in a manner similar to how withholding agents and participating FFIs will document a participating FFI, including by verifying that the GIIN of the direct reporting NFFE is listed on the IRS FFI List. Notwithstanding that a direct reporting NFFE will document itself to withholding agents and participating FFIs in a manner similar to a participating FFI, it will not be treated as a participating FFI and will not enter into an FFI agreement. Therefore, since the definition of excepted NFFE includes a direct reporting NFFE, an account held by a direct reporting NFFE will not be treated as a U.S. account and will not be reported to the IRS by a participating FFI with which the direct reporting NFFE has a financial account. In addition, these temporary regulations modify the final regulations such that an entity may act as a sponsor for one or more direct reporting NFFEs. A sponsoring entity will report on Form 8966 directly to the IRS (on the sponsored direct reporting NFFE’s behalf) information about each sponsored direct reporting NFFE’s direct or indirect substantial U.S. owners. These changes were previously announced in Notice 2013–69 and were made in response to comments. tkelley on DSK3SPTVN1PROD with RULES3 IX. Changes and Comments to § 1.1473– 1—Section 1473 Definitions A. Definition of Withholdable Payment—U.S. Source FDAP Income Defined—Special Rule for Sales of Interest Bearing Debt Obligations; Gross Proceeds Defined—Payment of Gross Proceeds—Amount of Gross Proceeds Under the final regulations, income that is otherwise described as U.S. source FDAP income does not include interest accrued on the date of a sale or exchange of an interest bearing debt obligation if the sale occurs between two interest payment dates. In order to harmonize this rule with the rules in chapter 3, these temporary regulations provide that this type of interest is not VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 excluded from U.S. source FDAP income or gross proceeds if the sale or exchange is part of a plan described in the anti-abuse rule under § 1.1441– 3(b)(2)(ii). B. Definition of Withholdable Payment—Payments Not Treated as Withholdable Payments—Offshore Payments of U.S. Source FDAP Income Prior to 2017 (Transitional) 1. In General The final regulations provide an exclusion from the definition of withholdable payments for certain nonintermediated offshore payments of U.S. source FDAP income prior to 2017. The Treasury Department and the IRS intended to provide that the exclusion does not apply to debt or equity issued by a U.S. person in order to prevent U.S. persons from exploiting this exception by issuing debt or equity interests through a foreign branch. To clarify the issue, these temporary regulations modify the final regulations such that the exclusion does not apply to payments made with respect to debt or equity issued by a U.S. person (excluding a deposit account maintained by a foreign branch of a U.S. financial institution). Comments indicated that because the defined term payments with respect to an offshore obligation is not used in the final regulations, it is unclear whether, in order for this exception to apply, all payments must be made outside the U.S. To clarify, these temporary regulations modify the final regulations to use the defined term. 2. Insurance Brokers Because the final regulations treat insurance brokers as intermediaries, the transitional rule for offshore payments of U.S. source FDAP income under the final regulations does not apply to insurance and reinsurance premiums paid to foreign insurance companies by non-U.S. insurance brokers. Comments were received stating that the transitional rule should apply to such premiums, because it applies to insurance premiums paid directly by the insured. These temporary regulations provide a transitional rule such that, for purposes of the exception for offshore payments, an intermediary does not include a person acting as an insurance broker with respect to premiums. PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 12823 C. Definition of Withholdable Payment—Payments Not Treated as Withholdable Payments—Collateral Arrangements Prior to 2017 (Transitional) Comments requested relief from withholding on payments made by a secured party with respect to collateral securing one or more transactions under a collateral arrangement between the secured party and the counterparty. Comments indicated that general industry practice is to commingle collateral from all counterparties in a single account held by the secured party and that this practice does not permit the identification of collateral to a particular counterparty. As a result, a secured party is currently unable to determine whether it is acting as an intermediary or a principal with respect to some or all of the payments made to the counterparty based upon the secured party’s right under a collateral arrangement to sell or loan the collateral to a third party. To allow the industry time to develop the systems necessary to make this determination, these temporary regulations add a transitional rule so that withholding on such payments will begin on January 1, 2017, provided that only a commercially reasonable amount of collateral is held by the secured party as part of the collateral arrangement. D. Substantial U.S. Owner—Indirect Ownership of Foreign Entities—Interests Owned or Held by a Related Person The final regulations define a substantial U.S. owner to include a specified U.S. person that owns, directly or indirectly, more than 10 percent of a foreign corporation, partnership, or trust. Ownership is determined by aggregating interests held by related persons, applying certain provisions of the regulations under section 267 to determine whether such persons are related. These temporary regulations clarify that a person must have direct or indirect ownership in the entity before the aggregation rules apply, such that a substantial U.S. owner does not include an individual with no ownership interest other than an interest attributed to him from a related person. X. Changes and Comments to § 1.1474– 1—Liability for Withheld Tax and Withholding Agent Reporting A. Information Returns for Payment Reporting—Filing Requirement—in General The final regulations provide a general statement that a withholding agent needs to file a Form 1042–S to report a chapter 4 reportable amount, E:\FR\FM\06MRR3.SGM 06MRR3 12824 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 even though there are exceptions to this rule, such as the exception applicable to a participating FFI that provides its withholding agent with sufficient information for it to do the reporting. The final regulations have been modified to qualify this language. The final regulations also provide that a recipient copy of the Form 1042–S may include more than one type of income, which would thus display information differently than the copy filed with the IRS. For refund purposes, it is important for the IRS to match the recipient copy of the Form 1042–S to the copy filed with the IRS. As previewed in the draft Form 1042–S instructions released on November 1, 2013, and to coordinate with the regulations under chapter 3, these temporary regulations remove the allowance for withholding agents to include more than one type of income or other payment on the copy of the Form 1042–S furnished to the recipient. However, to allow sufficient time for withholding agents to adapt to this change to the final regulations, a withholding agent will be permitted to include more than one type of income or other payment on the recipient copy of the Form 1042–S for calendar year 2014. Starting with calendar year 2015, the Form 1042–S and accompanying instructions will require a separate Form 1042–S for each type of income or other payment. B. Information Returns for Payment Reporting—Filing Requirement— Recipient—Defined; Persons That Are Not Recipients For Form 1042–S reporting, the final regulations provide that an excepted NFFE that is not acting as an agent or intermediary with respect to the payment is the recipient of the payment in question. However, if such entity is a flow-through entity, it is not treated as a recipient on the Form 1042–S for chapter 3 purposes. In order to have a consistent definition of recipient for chapters 3 and 4 reporting purposes (because reporting for both chapters is performed on a single Form 1042–S), these temporary regulations modify the final regulations by providing that an excepted or passive NFFE that is a flowthrough entity is not treated as a recipient. Also, the final regulations have been modified to remove the provision indicating that a participating FFI or registered deemed-compliant FFI is not a recipient when it fails to provide information to the withholding agent regarding its reporting pools, which is reflected on Form 1042–S. These temporary regulations further remove the references to a participating VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 FFI, registered deemed-compliant FFI, and U.S. branch that is not treated as a U.S. person from the definition of persons that are not recipients. C. Information Returns for Payment Reporting—Amounts Subject To Reporting—in General These temporary regulations make a correction to the definition of the term chapter 4 reportable amount in § 1.1474–1(d)(2) to add that this amount must also be a withholdable payment. D. Information Returns for Payment Reporting—Method of Reporting— Payments by U.S. Withholding Agents to Recipients—Payments To Participating FFIs, Deemed-Compliant FFIs, and Certain QIs Consistent with changes made by these temporary regulations to clarify the chapter 4 withholding rate pools, the final regulations are modified to clarify that a withholding agent that receives an FFI withholding statement from a participating FFI or registered deemed-compliant FFI [must report with respect to each such pool identified on the FFI withholding statement] on a separate Form 1042–S issued to the participating FFI, registered deemed-compliant FFI, or QI (as applicable) as the recipient with respect to each such pool identified on an FFI withholding statement. XI. Comments and Changes to § 1.1474– 6—Coordination of Chapter 4 With Other Withholding Provisions These temporary regulations add a coordination rule for instances in which a participating FFI withholds under chapter 4 on a payment made to a recalcitrant account holder that is a U.S. non-exempt recipient, and such payment is also a reportable amount subject to backup withholding. The rule is applicable to cases in which the participating FFI does not elect to withhold on the payment under section 3406. XII. Future Guidance A. Verification Requirements of Sponsoring Entities Regulations describing the verification requirements of sponsoring entities will be proposed and issued separately from these temporary regulations. Under the proposed regulations, a sponsoring entity will be required to make two separate compliance certifications: one on behalf of its sponsored FFI or sponsored direct reporting NFFE with respect to the sponsored FFI’s compliance with the requirements of an FFI agreement or the sponsored direct reporting NFFE’s PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 election to be treated as a direct reporting NFFE (as applicable), and a second certification on the sponsoring entity’s own behalf with respect to its compliance with the requirements of its status as a sponsoring entity. In addition, the verification requirements in the proposed regulations will allow the IRS to request additional information from a sponsoring entity, such as regarding the information reported on the forms filed with the IRS with respect to a sponsored FFI or sponsored direct reporting NFFE in order to review such entities’ compliance with the requirements for maintaining their status as a sponsored FFI or sponsored direct reporting NFFE, and to assist the IRS with its review of account holder or substantial U.S. owner compliance with tax reporting requirements. B. FFI Agreement Several changes made by these temporary regulations are not reflected in and may be inconsistent with certain provisions in the FFI agreement. As a result, the Treasury Department and the IRS intend to publish a revenue procedure revising the FFI agreement to conform to these regulations. For instance, the rules regarding an optional escrow by a participating FFI of tax withheld on withholdable payments to dormant accounts held by recalcitrant account holders are modified in these temporary regulations. The FFI agreement will be revised to reflect that the tax withheld in escrow becomes due 90 days after the date that the account ceases to be a dormant account, rather than the date that is the earlier of 90 days or the end of the calendar year following the date that the account ceases to be a dormant account. In addition, cross references to the temporary regulations under chapters 3, 4, and 61 will be updated to reflect changes to the numbering of various sections of those temporary regulations after the date of publication of the revenue procedure containing the FFI agreement. For example, cross references in the FFI agreement to terms defined in the chapter 4 temporary regulations will be modified to reflect the addition of the term reporting Model 2 FFI and the renumbering of subsequent sections in § 1.1471–1(b). In addition, an incorrect citation to § 1.6049–4(b)(6) will be removed. The FFI agreement will also be revised to reflect a change to the reporting requirements by participating FFIs that elect to backup withhold under section 3406 rather than to withhold under chapter 4 on a withholdable payment that is a E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 reportable payment made to a recalcitrant account holder that is a U.S. non-exempt recipient subject to backup withholding. These temporary regulations clarify that a participating FFI may make the election to apply backup withholding under section 3406 with respect to an account holder only if it complies with the information reporting rules under chapter 61 and section 3406. Accordingly, various sections of the FFI agreement will be modified to reflect this change. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13653. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) does not apply to these regulations. The collection of information in these temporary regulations is contained in a number of provisions including §§ 1.1471–3, 1.1471–4, 1.1472–1, 1.1474–1, and 1.1474–6. In addition, these temporary regulations amend a number of collections of information set out in TD 9610. The IRS intends that the information collection requirements of these temporary regulations will be satisfied by filing Forms 8957, 8966, the W–8 series of forms, W–9, 1042, 1042– S, the 1099 series of forms, as well as income tax returns (for example, Forms 1040 and 1120F) and Form 843 relating to refunds. As a result, for purposes of the Paperwork Reduction Act (44 U.S.C. 3507), the reporting burden associated with the collection of information in these temporary regulations will be reflected in the information collection burden and OMB control number of the appropriate IRS form. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. Books and records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104–4, requires that an agency prepare a costs and benefits analysis and a budgetary impact statement before promulgating a rule that may result in the expenditure by State, local, and VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Reform Act requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. The Treasury Department and the IRS have determined that there is no federal mandate imposed by this rulemaking that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the Special Analyses section of the preamble to the crossreferenced notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. Drafting Information The principal authors of these regulations are Tara Ferris, Nancy Lee, Michael Kaercher, and Kamela Nelan of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: ■ Authority: 26 U.S.C. 7805 * * * Section 1.1471–1 is also issued under 26 U.S.C. 1471. Section 1.1471–2 is also issued under 26 U.S.C. 1471. Section 1.1471–3 is also issued under 26 U.S.C. 1471. Section 1.1471–4 is also issued under 26 U.S.C. 1471. Section 1.1471–5 is also issued under 26 U.S.C. 1471. Section 1.1471–6 is also issued under 26 U.S.C. 1471. Section 1.1472–1 is also issued under 26 U.S.C. 1472. Section 1.1471–3 is also issued under 26 U.S.C. 1473. PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 12825 Section 1.1474–1 is also issued under 26 U.S.C. 1474. Section 1.1474–6 is also issued under 26 U.S.C. 1474. Par. 2. Section 1.1471–1 is amended: 1. By removing paragraph (b)(81). 2. By redesignating paragraphs (b)(115) through (b)(142) as (b)(124) through (b)(151), paragraphs (b)(108) through (b)(114) as (b)(116) through (b)(122), paragraph (b)(107) as (b)(114), paragraphs (b)(82) through (b)(106) as (b)(88) through (b)(112), paragraphs (b)(75) through (b)(80) as (b)(82) through (b)(87), paragraphs (b)(62) through (b)(74) as (b)(68) through (b)(80), paragraphs (b)(39) through (b)(61) as (b)(44) through (b)(66), paragraphs (b)(28) through (b)(38) as (b)(32) through (b)(42), paragraphs (b)(18) through (b)(27) as (b)(21) through (b)(30), paragraphs (b)(9) through (b)(17) as (b)(11) through (b)(19), and paragraphs (b)(7) and (b)(8) as (b)(8) and (b)(9). ■ 3. By adding new paragraphs (b)(7), (b)(10), (b)(20), (b)(31), (b)(43), (b)(67), (b)(81), (b)(113), (b)(115), and (b)(123). ■ 4. By revising newly-designated paragraphs (b)(23), (b)(35), (b)(41), (b)(48), (b)(50), (b)(76), (b)(77), (b)(83), (b)(88), (b)(91), (b)(98), (b)(100), (b)(104)(i), (b)(104)(ii)(A) through (C), (b)(105), (b)(124), (b)(125), (b)(128), (b)(135), and (b)(141). The revisions and additions read as follows: ■ ■ ■ § 1.1471–1 Scope of chapter 4 and definitions. * * * * * (b) * * * (7) [Reserved]. For further guidance, see § 1.1471–1T(b)(7). * * * * * (10) [Reserved]. For further guidance, see § 1.1471–1T(b)(10). * * * * * (20) [Reserved]. For further guidance, see § 1.1471–1T(b)(20). * * * * * (23) [Reserved]. For further guidance, see § 1.1471–1T(b)(23). * * * * * (31) [Reserved]. For further guidance, see § 1.1471–1T(b)(31). * * * * * (35) [Reserved]. For further guidance, see § 1.1471–1T(b)(35). * * * * * (41) [Reserved]. For further guidance, see § 1.1471–1T(b)(41). * * * * * (43) [Reserved]. For further guidance, see § 1.1471–1T(b)(43). * * * * * (48) [Reserved]. For further guidance, see § 1.1471–1T(b)(48). * * * * * E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12826 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (50) [Reserved]. For further guidance, see § 1.1471–1T(b)(50). * * * * * (67) [Reserved]. For further guidance, see § 1.1471–1T(b)(67). * * * * * (76) [Reserved]. For further guidance, see § 1.1471–1T(b)(76). (77) [Reserved]. For further guidance, see § 1.1471–1T(b)(77). * * * * * (81) [Reserved]. For further guidance, see § 1.1471–1T(b)(81). * * * * * (83) [Reserved]. For further guidance, see § 1.1471–1T(b)(83). * * * * * (88) [Reserved]. For further guidance, see § 1.1471–1T(b)(88). * * * * * (91) [Reserved]. For further guidance, see § 1.1471–1T(b)(91). * * * * * (98) [Reserved]. For further guidance, see § 1.1471–1T(b)(98). * * * * * (100) [Reserved]. For further guidance, see § 1.1471–1T(b)(100). * * * * * (104) * * * (i) [Reserved]. For further guidance, see § 1.1471–1T(b)(104)(i). (ii) * * * (A) [Reserved]. For further guidance, see § 1.1471–1T(b)(104)(ii)(A). (B) [Reserved]. For further guidance, see § 1.1471–1T(b)(104)(ii)(B). (C) [Reserved]. For further guidance, see § 1.1471–1T(b)(104)(ii)(C). (105) [Reserved]. For further guidance, see § 1.1471–1T(b)(105). * * * * * (113) [Reserved]. For further guidance, see § 1.1471–1T(b)(113). * * * * * (115) [Reserved]. For further guidance, see § 1.1471–1T(b)(115). * * * * * (123) [Reserved]. For further guidance, see § 1.1471–1T(b)(123). (124) [Reserved]. For further guidance, see § 1.1471–1T(b)(124). (125) [Reserved]. For further guidance, see § 1.1471–1T(b)(125). * * * * * (128) [Reserved]. For further guidance, see § 1.1471–1T(b)(128). * * * * * (135) [Reserved]. For further guidance, see § 1.1471–1T(b)(135). * * * * * (141) [Reserved]. For further guidance, see § 1.1471–1T(b)(141). * * * * * ■ Par. 3. Section 1.1471–1T is added to read as follows: VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 § 1.1471–1T Scope of chapter 4 and definitions (temporary). (a) [Reserved]. For further guidance, see § 1.1471–1(a). (b) [Reserved]. For further guidance, see § 1.1471–1(b). (1) through (6) [Reserved]. For further guidance, see § 1.1471–1(b)(1) through (6). (7) Backup withholding. The term backup withholding means the withholding required under section 3406. (8) [Reserved]. For further guidance, see § 1.1471–1(b)(8). (9) [Reserved]. For further guidance, see § 1.1471–1(b)(9). (10) Branch. The term branch means a branch as defined in § 1.1471– 4(e)(2)(ii). (11) through (19) [Reserved]. For further guidance, see § 1.1471–1(b)(11) through (19). (20) Chapter 4 withholding rate pool. The term chapter 4 withholding rate pool means a pool identified on a chapter 4 withholding statement (as described in § 1.1471–3(c)(3)) provided by an intermediary or flow-through entity with respect to a withholdable payment and that is allocated to payees that are nonparticipating FFIs. The term chapter 4 withholding rate pool also includes, with respect to a pool identified on an FFI withholding statement provided by a participating FFI or registered deemed-compliant FFI with respect to a withholdable payment that is allocated to a class of recalcitrant account holders subject to withholding under chapter 4 as described in § 1.1471–4(d)(6)(i) (including a pool of account holders to which the escrow procedures for dormant accounts apply and U.S. persons included in a U.S. payee pool to the extent allowed and as described in § 1.1471– 3(c)(3)(iii)(B)(2)(ii) and (iii)). (21) through (22) [Reserved]. For further guidance, see § 1.1471–1(b)(21) through (22). (23) Consolidated obligations. The term consolidated obligations means multiple obligations that a withholding agent (including a withholding agent that is an FFI) has chosen to treat as a single obligation in order to treat the obligations as preexisting obligations pursuant to paragraph (b)(104)(ii) of this section or in order to share documentation between the obligations pursuant to § 1.1471–3(c)(8). A withholding agent that has opted to treat multiple obligations as consolidated obligations pursuant to the previous sentence must also treat the obligations as a single obligation for purposes of satisfying the standards of knowledge requirements set forth in §§ 1.1471–3(e) PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 and 1.1471–4(c)(2)(ii), and for purposes of determining the balance or value of any of the obligations when applying any of the account thresholds applicable to due diligence or reporting as set forth in §§ 1.1471–3(c)(6)(ii), 1.1471–3(d), 1.1471–4(c), 1.1471–5(a)(4), and 1.1471– 5(b)(3)(vii). For example, with respect to consolidated obligations, if a withholding agent has reason to know that the chapter 4 status assigned to the account holder or payee of one of the consolidated obligations is inaccurate, then it has reason to know that the chapter 4 status assigned for all other consolidated obligations of the account holder or payee is inaccurate. Similarly, to the extent that an account balance or value is relevant for purposes of applying any account threshold to one or more of the consolidated obligations, the withholding agent must aggregate the balance or value of all such consolidated obligations. (24) through (30) [Reserved]. For further guidance, see § 1.1471–1(b)(24) through (30). (31) Direct reporting NFFE. The term direct reporting NFFE has the meaning set forth in § 1.1472–1(c)(3). (32) through (34) [Reserved]. For further guidance, see § 1.1471–1(b)(32) through (34). (35) Effective date of the FFI agreement. The term effective date of the FFI agreement with respect to an FFI or a branch of an FFI that is a participating FFI means the date on which the IRS issues a GIIN to the FFI or branch. For participating FFIs that receive a GIIN prior to June 30, 2014, the effective date of the FFI agreement is June 30, 2014. (36) through (40) [Reserved]. For further guidance, see § 1.1471–1(b)(36) through (40). (41) Excepted NFFE. The term excepted NFFE means a NFFE that is described in § 1.1472–1(c)(1). (42) [Reserved]. For further guidance, see § 1.1471–1(b)(42). (43) Exempt recipient. The term exempt recipient means a person described in § 1.6049–4(c)(1)(ii) (for interest, dividends, and royalties), a person described in § 1.6045–2(b)(2)(i) (for broker proceeds), and a person described in § 1.6041–3(q) (for rents, amounts paid on notional principal contracts, and other fixed or determinable income). (44) through (47) [Reserved]. For further guidance, see § 1.1471–1(b)(44) through (47). (48) FFI agreement. The term FFI agreement means an agreement that is described in § 1.1471–4(a). An FFI agreement includes a QI agreement, a WP agreement, and a WT agreement that E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations is entered into by an FFI (other than an FFI that is a registered deemedcompliant FFI, including a reporting Model 1 FFI) and that has an effective date or renewal date on or after June 30, 2014. The term FFI agreement also includes a QI agreement that is entered into by a foreign branch of a U.S. financial institution (other than a branch that is a reporting Model 1 FFI) and that has an effective date or renewal date on or after June 30, 2014. (49) [Reserved]. For further guidance, see § 1.1471–1(b)(49). (50) Financial institution. The term financial institution has the meaning set forth in § 1.1471–5(e) and includes a financial institution as defined in an applicable Model 1 or Model 2 IGA. (51) through (66) [Reserved]. For further guidance, see § 1.1471–1(b)(51) through (66). (67) Intergovernmental agreement (IGA). The term intergovernmental agreement or IGA means any applicable Model 1 or Model 2 IGA. (68) through (75) [Reserved]. For further guidance, see § 1.1471–1(b)(68) through (75). (76) Limited branch. The term limited branch has the meaning set forth in § 1.1471–4(e)(2)(iii). With respect to a reporting Model 2 FFI, a limited branch is a branch of the reporting Model 2 FFI that operates in a jurisdiction that prevents such branch from fulfilling the requirements of a participating FFI or deemed-compliant FFI, or that cannot fulfill the requirements of a participating FFI or deemed-compliant FFI due to the expiration of the transitional rule for limited branches under § 1.1471–4(e)(2)(v), and for which the reporting Model 2 FFI meets the terms of the applicable Model 2 IGA with respect to the branch. (77) Limited FFI. The term limited FFI has the meaning set forth in § 1.1471– 4(e)(3)(ii). With respect to a reporting Model 2 FFI, a limited FFI is a related entity that operates in a jurisdiction that prevents the entity from fulfilling the requirements of a participating FFI or deemed-compliant FFI or that cannot fulfill the requirements of a participating FFI or deemed-compliant FFI due to the expiration of the transitional rule for limited FFIs under § 1.1471–4(e)(3)(iv), and for which the reporting Model 2 FFI meets the requirements of the applicable Model 2 IGA with respect to the entity. (78) through (80) [Reserved]. For further guidance, see § 1.1471–1(b)(78) through (80). (81) Non-exempt recipient. The term non-exempt recipient means a person that is not an exempt recipient. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (82) [Reserved]. For further guidance, see § 1.1471–1(b)(82). (83) Nonreporting IGA FFI. The term nonreporting IGA FFI means an FFI that is identified as a nonreporting financial institution pursuant to a Model 1 IGA or Model 2 IGA that is not a registered deemed-compliant FFI, and an FFI that is a resident of, or located or established in, a Model 1 or Model 2 IGA jurisdiction, as the context requires, and that meets the requirements for certified deemed-compliant FFI status under § 1.1471–5(f)(2). (84) through (87) [Reserved]. For further guidance, see § 1.1471–1(b)(84) through (87). (88) Offshore obligation. The term offshore obligation means an offshore obligation defined in § 1.6049–5(c)(1) (by substituting the terms withholding agent or financial institution for the term payor). (89) through (90) [Reserved]. For further guidance, see § 1.1471–1(b)(89) through (90). (91) Participating FFI. The term participating FFI means an FFI that has agreed to comply with the requirements of an FFI agreement, including an FFI described in a Model 2 IGA that has agreed to comply with the requirements of an FFI agreement (a reporting Model 2 FFI). The term participating FFI also includes a QI branch of a U.S. financial institution, unless such branch is a reporting Model 1 FFI. (92) through (97) [Reserved]. For further guidance, see § 1.1471–1(b)(92) through (97). (98) Payor. The term payor has the meaning set forth in §§ 31.3406(a)–2 and 1.6049–1(a)(2) and generally includes a withholding agent. (99) [Reserved]. For further guidance, see § 1.1471–1(b)(99). (100) Person. The term person has the meaning set forth in section 7701(a)(1) and the regulations thereunder and includes an entity or arrangement that is an insurance company. The term person also includes, with respect to a withholdable payment, a QI branch of a U.S. financial institution. (101) through (103) [Reserved]. For further guidance, see § 1.1471–1(b)(101) through (103). (104) [Reserved]. For further guidance, see § 1.1471–1(b)(104). (i) The term preexisting obligation means any account, instrument, contract, debt, or equity interest maintained, executed, or issued by the withholding agent that is outstanding on June 30, 2014. With respect to a withholding agent that is a participating FFI, the term preexisting obligation means any account, instrument, or contract (including any debt or equity PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 12827 interest) maintained, executed, or issued by the FFI that is outstanding on the effective date of the FFI agreement. With respect to a withholding agent that is a registered deemed-compliant FFI, a preexisting obligation means any account, instrument, or contract (including any debt or equity interest) that is maintained, executed, or issued by the FFI prior to the later of the date that the FFI registers as a deemedcompliant FFI pursuant to § 1.1471– 5(f)(1) and receives a GIIN or the date the FFI is required to implement its account opening procedures under § 1.1471–5(f). (ii) [Reserved]. For further guidance, see § 1.1471–1(b)(104)(ii). (A) The account holder or payee also holds with the withholding agent (or a member of the withholding agent’s expanded affiliated group or sponsored FFI group) an account, instrument, contract, or equity interest that is a preexisting obligation under paragraph (b)(104)(i) of this section; (B) The withholding agent (and, as applicable, the member of the withholding agent’s expanded affiliated group or sponsored FFI group) treats both of the aforementioned obligations, and any other obligations of the payee or account holder that are treated as preexisting obligations under this paragraph (b)(104)(ii), as consolidated obligations; and (C) With respect to an obligation that is subject to AML due diligence, the withholding agent is permitted to satisfy such AML due diligence for the obligation by relying upon the AML due diligence performed for the preexisting obligation described in paragraph (b)(104)(i) of this section. (105) Pre-FATCA Form W–8. The term pre-FATCA Form W–8 means a version of a Form W–8 that was issued by the IRS prior to 2013 (including an acceptable substitute form based on such version) and that does not contain chapter 4 statuses but otherwise meets the requirements of § 1.1441–1(e)(1)(ii) applicable to such certificate (or substitute form) and has not expired, or a Form W–8 that was issued prior to 2013 and furnished by an individual to establish such individual’s foreign status but otherwise meets the requirements of § 1.1441–1(e)(1)(ii) applicable to such certificate and has not expired. (106) through (112) [Reserved]. For further guidance, see § 1.1471–1(b)(106) through (112). (113) Reportable payment. The term reportable payment means a payment of interest or dividends (as defined in section 3406(b)(2)) and other reportable E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12828 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations payments (as defined in section 3406(b)(3)). (114) [Reserved]. For further guidance, see § 1.1471–1(b)(114). (115) Reporting Model 2 FFI. The term reporting Model 2 FFI means a participating FFI that is described in § 1.1471–1(b)(91). (116) through (122) [Reserved]. For further guidance, see § 1.1471–1(b)(116) through (122). (123) Sponsored direct reporting NFFE. The term sponsored direct reporting NFFE has the meaning set forth in § 1.1472–1(c)(5). (124) Sponsoring entity. The term sponsoring entity means (i) an entity that registers with the IRS and agrees to perform the due diligence, withholding, and reporting obligations of one or more FFIs pursuant to § 1.1471–5(f)(1)(i)(F) or (f)(2)(iii); or (ii) an entity that registers with the IRS and agrees to perform the due diligence and reporting obligations of one or more direct reporting NFFEs pursuant to § 1.1472–1(c)(5). (125) Standardized industry coding system. The term standardized industry coding system means a coding system used by the withholding agent or FFI to classify account holders by business type for purposes other than U.S. tax purposes and that was implemented by the withholding agent by the later of January 1, 2012, or six months after the date the withholding agent was formed or organized. (126) through (127) [Reserved]. For further guidance, see § 1.1471–1(b)(126) through (127). (128) Substantial U.S. owner. The term substantial U.S. owner or substantial United States owner has the meaning set forth in § 1.1473–1(b). In the case of a reporting Model 2 FFI, in applying this section with respect to a passive NFFE the term substantial U.S. owner means a controlling person as defined in the applicable Model 2 IGA. (129) through (134) [Reserved]. For further guidance, see § 1.1471–1(b)(129) through (134). (135) U.S. branch treated as a U.S. person. The term U.S. branch treated as a U.S. person means a U.S. branch of a participating FFI, registered deemedcompliant FFI, or NFFE that is treated as a U.S. person under § 1.1441– 1(b)(2)(iv)(A). (136) through (140) [Reserved]. For further guidance, see § 1.1471–1(b)(136) through (140). (141) U.S. person—(i) The term U.S. person or United States person means a person described in section 7701(a)(30), the United States government (including an agency or instrumentality thereof), a State (including an agency or instrumentality thereof), or the District VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 of Columbia (including an agency or instrumentality thereof). The term U.S. person or United States person also means a foreign insurance company that has made an election under section 953(d), provided that either the foreign insurance company is not a specified insurance company (as described in § 1.1471–5(e)(1)(iv)) and is not licensed to do business in any State, or the foreign insurance company is a specified insurance company and is licensed to do business in any State. (ii) The term U.S. person or United States person does not include a foreign insurance company that has made an election under section 953(d) if it is a specified insurance company and is not licensed to do business in any State. (142) through (151) [Reserved]. For further guidance, see § 1.1471–1(b)(142) through (151). (c) [Reserved]. For further guidance, see § 1.1471–1(c). (d) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 4. In § 1.1471–2, ■ a. Revise paragraphs (a)(1), (a)(2)(i), (a)(2)(ii) introductory text, (a)(2)(iii)(A), and (a)(2)(v). ■ b. Remove the heading of paragraph (a)(4)(ii), and add introductory text to paragraph (a)(4)(ii). ■ c. Revise paragraphs (a)(4)(ii)(A), (a)(4)(ii)(B), (b)(2)(i)(A)(1), (b)(2)(ii)(A)(4), (b)(2)(ii)(B)(2), (b)(2)(iv), and (b)(4)(ii). The revisions read as follows: § 1.1471–2 Requirement to deduct and withhold tax on withholdable payments to certain FFIs. (a) * * * (1) [Reserved]. For further guidance, see § 1.1471–2T(a)(1). (2) * * * (i) [Reserved]. For further guidance, see § 1.1471–2T(a)(2)(i). (ii) [Reserved]. For further guidance, see § 1.1471–2T(a)(2)(ii). (iii) * * * (A) [Reserved]. For further guidance, see § 1.1471–2T(a)(2)(iii)(A). * * * * * (v) [Reserved]. For further guidance, see § 1.1471–2T(a)(2)(v). * * * * * (4) * * * (ii) [Reserved]. For further guidance, see § 1.1471–2T(a)(4)(ii). (A) [Reserved]. For further guidance, see § 1.1471–2T(a)(4)(ii)(A). (B) [Reserved]. For further guidance, see § 1.1471–2T(a)(4)(ii)(B). * * * * * (b) * * * (2) * * * PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 (i) * * * (A) * * * (1) [Reserved]. For further guidance, see § 1.1471–2T(b)(2)(i)(A)(1). * * * * * (ii) * * * (A) * * * (4) [Reserved]. For further guidance, see § 1.1471–2T(b)(2)(ii)(A)(4). * * * * * (B) * * * (2) [Reserved]. For further guidance, see § 1.1471–2T(b)(2)(ii)(B)(2). * * * * * (iv) [Reserved]. For further guidance, see § 1.1471–2T(b)(2)(iv). * * * * * (4) * * * (ii) [Reserved]. For further guidance, see § 1.1471–2T(b)(4)(ii). * * * * * ■ Par. 5. Section 1.1471–2T is added to read as follows: § 1.1471–2T Requirement to deduct and withhold tax on withholdable payments to certain FFIs (temporary). (a) [Reserved]. For further guidance, see § 1.1471–2(a). (1) General rule of withholding. Under section 1471(a), notwithstanding any exemption from withholding under any other provision of the Code or regulations, a withholding agent must withhold 30 percent of any withholdable payment made after June 30, 2014, to a payee that is an FFI unless either the withholding agent can reliably associate the payment with documentation upon which it is permitted to rely to treat the payment as exempt from withholding under paragraph (a)(4) of this section or the payment is made under a grandfathered obligation that is described in paragraph (b) of this section or constitutes gross proceeds from the disposition of such an obligation. A withholding agent that is making a payment must determine who the payee is under § 1.1471–3(a) with respect to that payment and the chapter 4 status of such payee. See § 1.1471–3 for requirements for determining the chapter 4 status of a payee, including additional documentation requirements that apply when a payment is made to an intermediary or flow-through entity that is not the payee. Withholding under this section applies without regard to whether the payee receives a withholdable payment as a beneficial owner or as an intermediary. See paragraph (a)(2)(iv) of this section for a description of the withholding requirements imposed on territory financial institutions as withholding agents under chapter 4. In the case of a E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations withholdable payment to a NFFE, a withholding agent is required to determine whether withholding applies under section 1472 and § 1.1472–1. Except as otherwise provided in the regulations under chapter 4, a withholding obligation arises on the date a payment is made, as determined under § 1.1473–1(a). (2) [Reserved]. For further guidance, see § 1.1471–2(a)(2). (i) Requirement to withhold on payments of U.S. source FDAP income to participating FFIs and deemedcompliant FFIs that are NQIs, NWPs, or NWTs. A withholding agent that, after June 30, 2014, makes a payment of U.S. source FDAP income to a participating FFI or deemed-compliant FFI that is an NQI receiving the payment as an intermediary, or a NWP or NWT, must withhold 30 percent of the payment unless the withholding is reduced under this paragraph (a)(2)(i). A withholding agent is not required to withhold on a payment, or portion of a payment, that it can reliably associate, in the manner described in § 1.1471–3(c)(2), with a valid intermediary or flow-through withholding certificate that meets the requirements of § 1.1471–3(d)(4) and a withholding statement that meets the requirements of § 1.1471–3(c)(3)(iii)(B) and that allocates the payment or portion of the payment to payees for which no withholding is required under chapter 4. Further, a withholding agent is not required to withhold on a payment that it can reliably associate with documentation indicating that the payee is a U.S. branch of a participating FFI that is treated as a U.S. person under § 1.1441–1(b)(2)(iv)(A). (ii) Residual withholding responsibility of intermediaries and flow-through entities. An intermediary or flow-through entity that receives a withholdable payment after June 30, 2014, is required to withhold on such payment to the extent required under chapter 4. Notwithstanding the previous sentence, an intermediary or flowthrough entity is not required to withhold if another withholding agent has withheld the full amount required. Further, an NQI, NWP, or NWT is not required to withhold with respect to a withholdable payment under chapter 4 if it has provided a valid intermediary withholding certificate or flow-through withholding certificate and all of the information required by § 1.1471– 3(c)(3)(iii), and it does not know, and has no reason to know, that another withholding agent failed to withhold the correct amount. A QI’s, WP’s, or WT’s obligation to withhold and report is determined in accordance with its QI VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 withholding agreement, WP agreement, or WT agreement. (iii) [Reserved]. For further guidance, see § 1.1471–2(a)(2)(iii). (A) Election to be withheld upon for U.S. source FDAP income. A withholding agent is required to withhold with respect to a payment, or portion of a payment, that is U.S. source FDAP income subject to withholding that is made after June 30, 2014, to a QI that has elected in accordance with this paragraph to be withheld upon, unless such withholding agent also makes an election to be withheld upon under this paragraph (a)(2)(iii)(A) or is an FFI that may not accept primary withholding responsibility for the payment. In such case, the withholding agent must withhold 30 percent of the portion of the payment that is allocable, pursuant to a withholding statement described in § 1.1471–3(c)(3)(iii)(B) provided by the QI, to recalcitrant account holders and nonparticipating FFIs. If no such allocation information is provided, the withholding agent must apply the presumption rules of § 1.1471–3(f) to determine the chapter 4 status of the payee. A QI that is an FFI and that makes the election to be withheld upon with respect to a payment of U.S. source FDAP income may not assume primary withholding responsibility under chapter 3 for that payment. Conversely, a QI that is an FFI and that does not make the election to be withheld upon with respect to a payment of U.S. source FDAP income is required to assume primary withholding responsibility under chapter 3 for that payment. The election to be withheld upon is only available with respect to a payment of U.S. source FDAP income if— (1) through (4) [Reserved]. For further guidance, see § 1.1471–2(a)(2)(iii)(A)(1) through (4). (B) [Reserved]. For further guidance, see § 1.1471–2(a)(2)(iii)(B). (iv) [Reserved]. For further guidance, see § 1.1471–2(a)(2)(iv). (v) Withholding obligation of a foreign branch of a U.S. financial institution. Generally, a foreign branch of a U.S. financial institution is a withholding agent and is not an FFI. However, a QI branch of a U.S. financial institution is both a withholding agent and either a participating FFI or a registered deemed-compliant FFI. Accordingly, a QI branch of a U.S. financial institution must withhold in accordance with this section and § 1.1472–1(b) in addition to meeting its obligations under either § 1.1471–4(b) and its FFI agreement or § 1.1471–5(f). Similarly, a foreign branch of a U.S. financial institution that is also a reporting Model 1 FFI is both a withholding agent and a PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 12829 registered deemed-compliant FFI. Accordingly, a foreign branch of a U.S. financial institution that is a reporting Model 1 FFI must withhold in accordance with this section and § 1.1472–1(b). A foreign branch of a U.S. financial institution that is not a QI is not permitted to make an election to be withheld upon. (vi) [Reserved]. For further guidance, see § 1.1471–2(a)(2)(vi). (3) [Reserved]. For further guidance, see § 1.1471–2(a)(3). (4) [Reserved]. For further guidance, see § 1.1471–2(a)(4). (i) through (i)(B) [Reserved]. For further guidance, see § 1.1471–2(a)(4)(i) through (a)(4)(i)(B). (ii) Exception to withholding for certain payments made prior to July 1, 2016 (transitional). (A) In general. For any withholdable payment made prior to July 1, 2016, with respect to a preexisting obligation for which a withholding agent does not have documentation indicating the payee’s status as a nonparticipating FFI, the withholding agent is not required to withhold under this section and section 1471(a) unless the payee is a prima facie FFI. (B) Prima facie FFIs. If the payee is a prima facie FFI, the withholding agent must treat the payee as a nonparticipating FFI beginning on January 1, 2015, until the date the withholding agent obtains documentation sufficient to establish a different chapter 4 status of the payee. A prima facie FFI means any payee if— (1) through (2)(xviii) [Reserved]. For further guidance, see § 1.1471– 2(a)(4)(ii)(B)(1) through (a)(4)(ii)(B)(2)(xviii). (iii) through (viii) [Reserved]. For further guidance, see § 1.1471– 2(a)(4)(iii) through (viii). (5) through (5)(ii) [Reserved]. For further guidance, see § 1.1471–2(a)(5) through (a)(5)(ii). (b) [Reserved]. For further guidance, see § 1.1471–2(b). (1) [Reserved]. For further guidance, see § 1.1471–2(b)(1). (2) [Reserved]. For further guidance, see § 1.1471–2(b)(2). (i) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(i). (A) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(i)(A). (1) Any obligation outstanding on July 1, 2014; (2) through (3) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(i)(A)(2) through (3). (B) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(i)(B). (ii) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii). E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12830 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (A) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(A). (1) through (3) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(A)(1) through (3). (4) A life insurance contract under which the entire contract value is payable no later than upon the death of the individual(s) insured under the contract but, in the case of a life insurance contract that contains a provision that permits the substitution of a new individual as the insured under the contract, only until a substitution occurs; and (5) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(A)(5). (B) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(B). (1) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(B)(1). (2) Lacks a stated expiration or term (for example, a savings deposit or demand deposit, a deferred annuity contract, or an annuity contract that permits a substitution of a new individual as the annuitant under the contract); (3) through (4) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(ii)(B)(3) through (4). (iii) [Reserved]. For further guidance, see § 1.1471–2(b)(2)(iii). (iv) Material modification. In the case of an obligation that constitutes indebtedness for U.S. tax purposes, a material modification is any significant modification of the debt instrument as defined in § 1.1001–3(e). For life insurance contracts, a material modification includes any substitution of the insured under the contract. In all other cases, whether a modification of an obligation is material is determined based on the facts and circumstances. (3) through (3)(iii) [Reserved]. For further guidance, see § 1.1471–2(b)(3) through (b)(3)(iii). (4) [Reserved]. For further guidance, see § 1.1471–2(b)(4). (i) [Reserved]. For further guidance, see § 1.1471–2(b)(4)(i). (ii) Determination of material modification. For purposes of paragraph (b)(2)(iv) of this section (defining material modification), a withholding agent, other than the issuer of the obligation (or an agent of the issuer), is required to treat a modification of the obligation as material only if the withholding agent has actual knowledge thereof, such as in the event the withholding agent receives a disclosure indicating that there has been or will be a material modification to such obligation. The issuer of the obligation (or an agent of the issuer) that is a withholding agent is required to treat a modification of the obligation as VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 material if the withholding agent knows or has reason to know that a material modification has occurred with respect to the obligation. (iii) [Reserved]. For further guidance, see § 1.1471–2(b)(4)(iii). (c) [Reserved]. For further guidance, see § 1.1471–2(c). (d) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 6. Section 1.1471–3 is amended: ■ 1. By adding paragraphs (c)(6)(ii)(B)(7), (c)(8)(v), (d)(5)(iii), and (d)(11)(x) through (xii). ■ 2. By revising paragraphs (a)(3)(iii), (a)(3)(v) through (vi), (b)(3), (c)(3)(ii)(C) through (D), (c)(3)(iii)(A) introductory text, (c)(3)(iii)(A)(5), (c)(3)(iii)(B)(1) through (4), (c)(5)(ii)(B), (c)(6)(ii)(B)(3), (c)(6)(ii)(B)(5) through (6), (c)(6)(ii)(C)(3) through (5), (c)(6)(ii)(E)(3), (c)(6)(iv), (c)(6)(v)(A) through (B), (c)(9)(ii)(B), (c)(9)(v), (d)(1), (d)(2)(i), (d)(2)(iii), (d)(4)(i) and (ii), (d)(4)(iii) introductory text, (d)(4)(iii)(A)(1), (d)(4)(iv)(A), (d)(4)(iv)(C) through (D), (d)(4)(v), (d)(5)(i) through (ii), (d)(6)(vii)(A)(1), (d)(11)(viii)(A) introductory text, (d)(11)(viii)(C), (d)(12)(iii)(A) through (B), (e)(2) through (3), (e)(4) introductory text, (e)(4)(i) through (iv), (e)(4)(v) introductory text, (e)(4)(v)(B)(1) through (2), (e)(4)(vi)(B), (e)(4)(vii)(B), (e)(4)(viii)(A)(4), and (f)(1) through (9). The additions and revisions read as follows: § 1.1471–3 Identification of payee. (a) * * * (3) * * * (iii) [Reserved]. For further guidance, see § 1.1471–3T(a)(3)(iii). * * * * * (v) [Reserved]. For further guidance, see § 1.1471–3T(a)(3)(v). (vi) [Reserved]. For further guidance, see § 1.1471–3T(a)(3)(vi). * * * * * (b) * * * (3) [Reserved]. For further guidance, see § 1.1471–3T(b)(3). * * * * * (c) * * * (3) * * * (ii) * * * (C) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(ii)(C). (D) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(ii)(D). * * * * * (iii) * * * (A) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(A). * * * * * (5) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(A)(5). * * * * * PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 (B) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(1). (2) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(2). (i) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(2)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(2)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(2)(iii). (3) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(3). (4) [Reserved]. For further guidance, see § 1.1471–3T(c)(3)(iii)(B)(4). * * * * * (5) * * * (ii) * * * (B) [Reserved]. For further guidance, see § 1.1471–3T(c)(5)(ii)(B). * * * * * (6) * * * (ii) * * * (B) * * * (3) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(B)(3). * * * * * (5) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(B)(5). (6) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(B)(6). (7) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(B)(7). (C) * * * (3) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(C)(3). (4) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(C)(4). (5) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(C)(5). * * * * * (E) * * * (3) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(ii)(E)(3). * * * * * (iv) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(iv). (v) * * * (A) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(v)(A). (B) [Reserved]. For further guidance, see § 1.1471–3T(c)(6)(v)(B). * * * * * (8) * * * (v) [Reserved]. For further guidance, see § 1.1471–3T(c)(8)(v). (9) * * * (ii) * * * (B) [Reserved]. For further guidance, see § 1.1471–3T(c)(9)(ii)(B). * * * * * (v) [Reserved]. For further guidance, see § 1.1471–3T(c)(9)(v). (d) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(d)(1). (2) * * * E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (i) [Reserved]. For further guidance, see § 1.1471–3T(d)(2)(i). * * * * * (iii) [Reserved]. For further guidance, see § 1.1471–3T(d)(2)(iii). * * * * * (4) * * * (i) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(iii). (A) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(iii)(A)(1). * * * * * (iv) * * * (A) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(iv)(A). * * * * * (C) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(iv)(C). (D) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(iv)(D). (v) [Reserved]. For further guidance, see § 1.1471–3T(d)(4)(v). (5) * * * (i) [Reserved]. For further guidance, see § 1.1471–3T(d)(5)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(d)(5)(ii) through (d)(5)(ii)(B). (A) [Reserved]. For further guidance, see § 1.1471–3T(d)(5)(ii)(A). (B) [Reserved]. For further guidance, see § 1.1471–3T(d)(5)(ii)(B). (iii) [Reserved]. For further guidance, see § 1.1471–3T(d)(5)(iii) through (d)(5)(iii)(B). (6) * * * (vii) * * * (A) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(d)(6)(vii)(A)(1). * * * * * (11) * * * (viii) * * * (A) [Reserved]. For further guidance, see § 1.1471–3T(d)(11)(viii)(A). * * * * * (C) [Reserved]. For further guidance, see § 1.1471–3T(d)(11)(viii)(C). * * * * * (x) [Reserved]. For further guidance, see § 1.1471–3T(d)(11)(x). (xi) [Reserved]. For further guidance, see § 1.1471–3T(d)(11)(xi). (xii) [Reserved]. For further guidance, see § 1.1471–3T(d)(11)(xii) through (d)(11)(xii)(C). (12) * * * (iii) * * * (A) [Reserved]. For further guidance, see § 1.1471–3T(d)(12)(iii)(A). (B) [Reserved]. For further guidance, see § 1.1471–3T(d)(12)(iii)(B). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (e) * * * (2) [Reserved]. For further guidance, see § 1.1471–3T(e)(2). (3) [Reserved]. For further guidance, see § 1.1471–3T(e)(3). (i) [Reserved]. For further guidance, see § 1.1471–3T(e)(3)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(e)(3)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–3T(e)(3)(iii). (iv) [Reserved]. For further guidance, see § 1.1471–3T(e)(3)(iv). (4) [Reserved]. For further guidance, see § 1.1471–3T(e)(4). (i) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(ii) through (e)(4)(ii)(B. (A) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(ii)(A). (B) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(ii)(B). (iii) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(iii). (iv) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(iv through (e)(4)(iv)(B)(2). (v) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(v). * * * * * (B) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(v)(B)(1). (2) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(v)(B)(2). * * * * * (vi) * * * (B) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(vi)(B). (vii) * * * (B) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(vii)(B). * * * * * (viii) * * * (A) * * * (4) [Reserved]. For further guidance, see § 1.1471–3T(e)(4)(viii)(A)(4). * * * * * (f) * * * (1) [Reserved]. For further guidance, see § 1.1471–3T(f)(1). (2) [Reserved]. For further guidance, see § 1.1471–3T(f)(2). (3) [Reserved]. For further guidance, see § 1.1471–3T(f)(3). (4) [Reserved]. For further guidance, see § 1.1471–3T(f)(4). (5) [Reserved]. For further guidance, see § 1.1471–3T(f)(5). (6) [Reserved]. For further guidance, see § 1.1471–3T(f)(6). (7) [Reserved]. For further guidance, see § 1.1471–3T(f)(7) through (f)(7)(ii). (i) [Reserved]. For further guidance, see § 1.1471–3T(f)(7)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3T(f)(7)(ii). PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 12831 (8) [Reserved]. For further guidance, see § 1.1471–3T(f)(8). (9) [Reserved]. For further guidance, see § 1.1471–3T(f)(9) through (f)(9)(ii). * * * * * ■ Par. 7. Section 1.1471–3T is added to read as follows: § 1.1471–3T Identification of payee (temporary). (a) [Reserved]. For further guidance, see § 1.1471–3(a). (1) through (2) [Reserved]. For further guidance, see § 1.1471–3(a)(1) through (2). (3) [Reserved]. For further guidance, see § 1.1471–3(a)(3). (i) through (ii)(B) [Reserved]. For further guidance, see § 1.1471–3(a)(3)(i) through (a)(3)(ii)(B). (iii) U.S. intermediary or agent of a foreign person. A withholding agent that makes a withholdable payment to a U.S. person and has actual knowledge that the person receiving the payment is acting as an intermediary or agent of a foreign person with respect to the payment must treat such foreign person, and not the intermediary or agent, as the payee of such payment. Notwithstanding the previous sentence, a withholding agent that makes a withholdable payment to a U.S. financial institution or a U.S. insurance broker (to the extent such withholdable payment is a payment of premiums) that is acting as an intermediary or agent with respect to the payment on behalf of one or more foreign persons may treat the U.S. financial institution or U.S. insurance broker as the payee if the withholding agent does not have reason to know that the U.S. financial institution or U.S. insurance broker will not comply with its obligations to withhold under sections 1471 and 1472. (iv) [Reserved]. For further guidance, see § 1.1471–3(a)(3)(iv). (v) Disregarded entity or limited branch. Except as otherwise provided in paragraph (a)(3)(v) through (vii) of this section, a withholding agent that makes a withholdable payment to an entity that is disregarded for U.S. federal tax purposes under § 301.7701–2(c)(2)(i) as an entity separate from its single owner must treat the single owner as the payee. The rules under § 1.1471–3(d)(4) and (e)(3) apply to determine the circumstances under which a withholding agent may treat a payment made to a disregarded entity owned by an FFI as made to a payee that is a participating FFI or registered deemedcompliant FFI, and not as a payment made to a payee that is a nonparticipating FFI. A withholding agent that makes a payment to a limited branch (including an entity disregarded E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12832 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations as a separate entity from its owner if such owner is an FFI and the disregarded entity is unable to comply with the terms of an FFI agreement with respect to accounts that it maintains) will be required to treat the payment as being made to a nonparticipating FFI. (vi) U.S. branch of certain foreign banks or foreign insurance companies. A withholdable payment to a U.S. branch of either a participating FFI or registered deemed-compliant FFI is a payment to a U.S. person if the U.S. branch is treated as a U.S. person for purposes of § 1.1441–1(b)(2)(iv). In such case the U.S. branch is treated as the payee. A U.S. branch, however, that is treated as a U.S. person under § 1.1441– 1(b)(2)(iv) is not treated as a U.S. person for purposes of the withholding certificate it may provide to a withholding agent for purposes of chapter 4. Accordingly, a U.S. branch of either a participating FFI or registered deemed-compliant FFI that is treated as a U.S. person must furnish a withholding certificate on a Form W–8 to certify its chapter 4 status (and not a Form W–9, ‘‘Request for Taxpayer Identification Number and Certification’’). See also paragraph (f)(6) of this section for the rules under which a withholding agent can presume a payment constitutes income that is effectively connected with a U.S. trade or business. A U.S. branch of either a participating FFI or registered deemedcompliant FFI that is treated as a U.S. person for purposes of chapter 3 may not make an election to be withheld upon, as described in section 1471(b)(3) and § 1.1471–2(a)(2)(iii), for purposes of chapter 4. See § 1.1471–4(c)(2)(v) for the rule requiring a U.S. branch that has elected to be treated as a U.S. person to apply the due diligence rules applicable to a U.S. withholding agent in lieu of those otherwise applicable to a participating FFI. See also § 1.1474– 1(i)(1) and (2) for the requirement of a U.S. branch to report information regarding certain U.S. owners of owner documented FFIs and passive NFFEs. See § 1.1471–4(d) for rules for when a U.S. branch of a participating FFI is required to report as a U.S. person. (vii) [Reserved]. For further guidance, see § 1.1471–3(a)(3)(vii). (b) [Reserved]. For further guidance, see § 1.1471–3(b). (1) through (2) [Reserved]. For further guidance, see § 1.1471–3(b)(1) through (2). (3) Determination of whether the payment is made to a QI, WP, or WT. A withholding agent may treat the person who receives a payment as a QI, WP, or WT if the withholding agent can reliably associate the payment with a VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 valid Form W–8IMY, as described in paragraph (c)(3)(iii) of this section, that indicates that the person who receives the payment is a QI, WP, or WT, provides the person’s QI–EIN, WP–EIN, or WT–EIN, and the person’s GIIN, if applicable. (4) [Reserved]. For further guidance, see § 1.1471–3(b)(4). (c) [Reserved]. For further guidance, see § 1.1471–3(c). (1) through (2)(ii) [Reserved]. For further guidance, see § 1.1471–3(c)(1) through (c)(2)(ii). (3) [Reserved]. For further guidance, see § 1.1471–3(c)(3). (i) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(ii). (A) through (B) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(ii)(A) through (B). (C) The person’s entity classification for U.S. tax purposes; (D) The person’s chapter 4 status; and (E) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(ii)(E). (iii) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(iii). (A) In general. A withholding certificate of an intermediary, flowthrough entity, or U.S. branch of such entity (whether or not such branch is treated as a U.S. person) is valid for purposes of chapter 4 only if it is furnished on a Form W–8IMY, an acceptable substitute form, or such other form as the IRS may prescribe, it is signed under penalties of perjury by a person with authority to sign for the person named on the form, its validity period has not expired, and it contains the following information, statements, and certifications— (1) through (4) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(iii)(A)(1) through (4). (5) A GIIN, in the case of a participating FFI or a registered deemed-compliant FFI (including a U.S. branch of such an entity, whether or not such branch is treated as a U.S. person, and a QI, WP, or WT that is a participating FFI or registered deemedcompliant FFI), and an EIN in the case of a QI, WP, or WT. Additionally, if a branch (other than a U.S. branch) of a participating FFI or registered deemedcompliant FFI outside of its country of residence acts as an intermediary, the GIIN of such branch must be provided on the withholding certificate. In the case of a U.S. branch, the GIIN provided must be the GIIN assigned to the participating FFI or registered deemedcompliant FFI. PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 (6) through (12) [Reserved]. For further guidance, see § 1.1471– 3(c)(3)(iii)(A)(6) through (12). (B) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(iii)(B). (1) In general. A withholding statement forms an integral part of the withholding certificate and the penalties of perjury statement provided on the withholding certificate applies to the withholding statement as well. The withholding statement may be provided in any manner, and in any form, to which the person submitting the form and the withholding agent mutually agree, including electronically. A withholding statement may be provided electronically only if it meets the requirements of § 1.1441–1(e)(3)(iv)(B). The withholding statement must be updated as often as necessary for the withholding agent to meet its reporting and withholding obligations under chapter 4. A withholding agent will be liable for tax, interest, and penalties under § 1.1474–1(a) to the extent it does not follow the presumption rules of paragraph (f) of this section for any payment, or portion thereof, for which a withholding statement is required and the withholding agent does not have a valid withholding statement prior to making a payment. A withholding agent that is making a payment for which a withholding statement is also required for purposes of chapter 3 may only rely upon the withholding statement if, in addition to providing the information required by paragraph (c)(3)(iii)(B) of this section, the withholding statement also includes all of the information required for purposes of chapter 3 and specifies the chapter 4 status of each payee or pool of payees identified on the withholding statement for purposes of chapter 3. (2) Special requirements for an FFI withholding statement. (i) An FFI withholding statement may include either payee-specific information or pooled information that indicates the portion of the payment allocable to a chapter 4 withholding rate pool of U.S. payees, each class of recalcitrant account holders identified in § 1.1471–4(d)(6), or a class of nonparticipating FFIs. If payee-specific information is provided for purposes of chapter 4 it must indicate both the portion of the payment allocated to each payee and each payee’s chapter 4 status. A participating FFI that applies the escrow procedures described in § 1.1471–4(b)(6) for dormant accounts must also indicate the portion of the payment allocated to a chapter 4 withholding rate pool of recalcitrant account holders that hold dormant accounts for which the participating FFI E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (and not the withholding agent) will withhold in escrow. The withholding statement provided by a participating FFI that applies the election to backup withhold under § 1.1471–4(b)(3)(iii) must also indicate the portion of the reportable payment that is a withholdable payment allocated to each recalcitrant account holders subject to backup withholding under section 3406. See section 3406 for when backup withholding is required, including the exception to backup withholding under § 31.3406(g)–1(e). Regardless of whether the FFI withholding statement provides information on a pooled or payeespecific basis, a withholding statement provided by an FFI other than an FFI acting as a WP, WT, or QI with respect to the account must also identify each intermediary or flow-through entity that receives the payment and such entity’s chapter 4 status and GIIN, when applicable. An FFI withholding statement must also include any other information that the withholding agent or payor reasonably requests in order to fulfill its obligations under chapter 4, and chapters 3 and 61, if applicable. (ii) An FFI withholding statement provided by a reporting Model 2 FFI or a reporting Model 1 FFI may indicate, with respect to a withholdable payment, that the payment is allocable to a chapter 4 withholding rate pool of U.S. payees, which is comprised of account holders that are not subject to withholding under chapters 3 or 4 or to backup withholding under section 3406 (for example, presumed U.S. nonexempt recipients) and that are, with respect to a reporting Model 2 FFI, the holders of non-consenting U.S. accounts as described in an applicable IGA when the FFI reports the accounts in one of the pools described in § 1.1471–4(d)(6) for the year in which the payment is made; or with respect to a reporting Model 1 FFI, the holders of accounts that have U.S. indicia for which appropriate documentation sufficient to treat the accounts as held by other than specified U.S. persons has not been provided pursuant to an applicable Model 1 IGA and the reporting Model 1 FFI reports the accounts as U.S. reportable accounts pursuant to the applicable Model 1 IGA for the year in which the payment is made. (iii) An FFI withholding statement provided by a participating FFI or registered deemed-compliant FFI that is a non-U.S. payor (a payor other than a U.S. payor as defined in § 1.6049– 5(c)(5)) may indicate, with respect to a withholdable payment, that the payment is allocable to a chapter 4 withholding rate pool of U.S. payees (in addition to the U.S. payees described in VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 paragraph (c)(3)(iii)(B)(2)(ii) of this section), which is comprised of account holders that are not subject to withholding under chapters 3 or 4 or to backup withholding under section 3406 and that are, with respect to a participating FFI (including a reporting Model 2 FFI), account holders that hold U.S. accounts (as defined in § 1.1471– 1(b)(134) and an applicable Model 2 IGA) that the FFI reports as U.S. accounts pursuant to § 1.1471–4(d)(3) or (5) for the year in which the payment is made; with respect to a registered deemed-compliant FFI (other than a reporting Model 1 FFI), account holders of U.S. accounts that the FFI reports pursuant to the conditions of its applicable deemed-compliant status under § 1.1471–5(f)(1) for the year in which the payment is made; or with respect to a reporting Model 1 FFI, account holders of U.S. accounts that the reporting Model 1 FFI reports as reportable U.S. accounts pursuant to an applicable Model 1 IGA, and which includes the U.S. TINs of such account holders, for the year in which the payment is made. (3) Special requirements for a chapter 4 withholding statement. A chapter 4 withholding statement must contain the name, address, TIN (if any), entity type, and chapter 4 status of each payee, the amount allocated to each payee, a valid withholding certificate or other appropriate documentation sufficient to establish the chapter 4 status of each payee, and each intermediary or flowthrough entity that receives the payment on behalf of the payee, in accordance with paragraph (d) of this section, and any other information the withholding agent reasonably requests in order to fulfill its obligations under chapter 4. Notwithstanding the prior sentence, a chapter 4 withholding statement is permitted to provide pooled allocation information with respect to payees that are treated as nonparticipating FFIs. Additionally, if the payment is a reportable amount under chapters 3 or 61, see the provisions of those chapters for any additional information that may be required (including pooled information under the alternative procedures described in § 1.1441– 1(e)(3)(iv)(D), if applicable). (4) Special requirements for an exempt beneficial owner withholding statement. An exempt beneficial owner withholding statement must include the name, address, TIN (if any), entity type, and chapter 4 status of each exempt beneficial owner on behalf of which the nonparticipating FFI is receiving the payment, the amount of the payment allocable to each exempt beneficial owner, a valid withholding certificate or PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 12833 other documentation sufficient to establish the chapter 4 status of each exempt beneficial owner in accordance with paragraph (d) of this section, and any other information the withholding agent reasonably requests in order to fulfill its obligations under chapter 4. The withholding statement must allocate the remainder of the payment that is not allocated to an exempt beneficial owner to the nonparticipating FFI receiving the payment. With respect to the amount of the payment allocable to each exempt beneficial owner and subject to withholding under chapter 3, see § 1.1441–1(e)(3)(iv). (C) through (H) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(iii)(C) through (H). (iv) through (v) [Reserved]. For further guidance, see § 1.1471–3(c)(3)(iv) through (v). (4) [Reserved]. For further guidance, see § 1.1471–3(c)(4). (5) [Reserved]. For further guidance, see § 1.1471–3(c)(5). (i) [Reserved]. For further guidance, see § 1.1471–3(c)(5)(i) through (c)(5)(i)(E). (ii) [Reserved]. For further guidance, see § 1.1471–3(c)(5)(ii). (A) [Reserved]. For further guidance, see § 1.1471–3(c)(5)(ii)(A). (B) Preexisting obligation documentary evidence. With respect to a preexisting obligation of an entity, any classification in the withholding agent’s records with respect to the payee that was determined based on documentation supplied by the payee (or other person receiving the payment) or a standardized industry coding system and that was recorded by the withholding agent consistent with its normal business practices for AML or another regulatory purpose (other than for tax purposes), to the extent permitted by paragraph (d) of this section and provided there is no U.S. indicia associated with the payee for which appropriate curing documentation has not been obtained as set forth in paragraph (e) of this section; and (C) [Reserved]. For further guidance, see § 1.1471–3(c)(5)(ii)(C). (6) [Reserved]. For further guidance, see § 1.1471–3(c)(6). (i) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii). (A) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(A). (B) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(B). (1) through (2) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(B)(1) through (2). E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12834 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (3) A beneficial owner withholding certificate that is provided by an entity described in paragraph (c)(6)(ii)(C)(2) of this section (other than an entity described in paragraph (c)(6)(ii)(C)(2)(iii) of this section) and documentary evidence establishing the entity’s foreign status when both are provided together; (4) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(B)(4). (5) A withholding certificate, written statement, or documentary evidence furnished by a foreign government, government of a U.S. territory, foreign central bank (including the Bank for International Settlements), international organization, or entity that is wholly owned by any such entities; (6) Documentary evidence that is not generally renewed or amended (such as a certificate of incorporation); and (7) For the validity period of a beneficial owner withholding certificate provided by an entity described in paragraph (c)(6)(ii)(C)(2)(iii) of this section, see § 1.1441–1(e)(4)(ii). (C) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(C). (1) through (2) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(C)(1) through (c)(6)(ii)(C)(2)(x). (3) A withholding certificate or written statement of an ownerdocumented FFI, but not including the withholding statements, documentary evidence, and withholding certificates of its owners (unless such documentation is permitted indefinite validity under another provision); (4) An owner reporting statement associated with a withholding certificate of an owner-documented FFI, provided the account balance of all accounts held by such owner-documented FFI with the withholding agent does not exceed $1,000,000 on the later of June 30, 2014, or the last day of the calendar year in which the account was opened, and the last day of each subsequent calendar year preceding the payment, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), and the owner-documented FFI does not have any contingent beneficiaries or designated classes with unidentified beneficiaries; and (5) A withholding certificate of a passive NFFE or excepted territory NFFE, provided the account balance of all accounts held by such entity with the withholding agent does not exceed $1,000,000 on the later of June 30, 2014, or the last day of the calendar year in which the account was opened, and the last day of each subsequent calendar year preceding the payment, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), and the withholding agent does not know or have reason to know VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 that the entity has any contingent beneficiaries or designated classes with unidentified beneficiaries. (D) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(D). (E) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(E). (1) through (2) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(ii)(E)(1) through (2). (3) Withholding agent’s obligation with respect to a change in circumstances. A certificate or other documentation becomes invalid on the date that the withholding agent holding the certificate or documentation knows or has reason to know that circumstances affecting the correctness of the certificate or documentation have changed. However, a withholding agent may choose to treat a person as having the same chapter 4 status that it had prior to the change in circumstances until the earlier of 90 days from the date that the certificate or documentation became invalid due to the change in circumstances or the date that a new certificate or new documentation is obtained. See, however, § 1.1441– 1(e)(4)(ii)(D) for requirements, including the requirement to withhold under chapters 3 or 61, applicable when a change in circumstances occurs for purposes of chapter 3 and the related grace period allowed under § 1.1441– 1(b)(3)(iv). A withholding agent may rely on a certificate without having to inquire into possible changes of circumstances that may affect the validity of the statement, unless it knows or has reason to know that circumstances have changed. A withholding agent may require a new certificate or additional documentation at any time prior to a payment, regardless of whether the withholding agent knows or has reason to know that any information stated on the certificate or documentation has changed. (iii) through (iii)(B) [Reserved]. For further guidance, see § 1.1471– 3(c)(6)(iii) through (c)(6)(iii)(B). (iv) Electronic transmission of withholding certificate, written statement, and documentary evidence. A withholding agent may accept a withholding certificate (including an acceptable substitute form), a written statement, or other such form as the IRS may prescribe, electronically in accordance with the requirements set forth in § 1.1441–1(e)(4)(iv)(B). (v) [Reserved]. For further guidance, see § 1.1471–3(c)(6)(v). (A) In general. A withholding agent may substitute its own form for an official Form W–8 (or such other official form as the IRS may prescribe). A substitute form will be acceptable if it PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 contains provisions that are substantially similar to those of the official form, it contains the same certifications relevant to the transactions as are contained on the official form and these certifications are clearly set forth, and the substitute form includes a signature-under-penalties-ofperjury statement identical to the one on the official form. The substitute form is acceptable even if it does not contain all of the provisions contained on the official form, so long as it contains those provisions that are relevant to the transaction for which it is furnished. A withholding agent may choose to provide a substitute form that does not include all of the chapter 4 statuses provided on the official version but the substitute form must include any chapter 4 status for which withholding may apply, such as the categories for a nonparticipating FFI or passive NFFE. A withholding agent that uses a substitute form must furnish instructions relevant to the substitute form only to the extent and in the manner specified in the instructions to the official form. A withholding agent may use a substitute form that is written in a language other than English and may accept a form that is filled out in a language other than English, but the withholding agent must make available an English translation of the form and its contents to the IRS upon request. A withholding agent may refuse to accept a certificate (including the official Form W–8) from a person if the certificate provided is not an acceptable substitute form provided by the withholding agent, but only if the withholding agent furnishes the person with an acceptable substitute form within five business days of receipt of an unacceptable form from the person. In that case, the substitute form is acceptable only if it contains a notice that the withholding agent has refused to accept the form submitted by the person and that the person must submit the acceptable form provided by the withholding agent in order for the person to be treated as having furnished the required withholding certificate. (B) Non-IRS form for individuals. A withholding agent may also substitute its own form for an official Form W– 8BEN (for individuals), regardless of whether the substitute form is titled a Form W–8. However, in addition to the name and address of the individual that is the payee or beneficial owner, the substitute form must provide all countries in which the individual is resident for tax purposes, country of birth, a tax identification number (if any) for each country of residence, the individual’s date of birth, and must E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations contain a signed and dated certification made under penalties of perjury that the information provided on the form is accurate and will be updated by the individual within 30 days of a change in circumstances that causes the form to become incorrect. Notwithstanding the previous sentence, the signed certification provided on a form need not be signed under penalties of perjury if the form is accompanied by documentary evidence that supports the individual’s claim of foreign status. Such documentary evidence may be the same documentary evidence that is used to support foreign status in the case of a payee whose account has U.S. indicia as described in paragraph (e) of this section or § 1.1471–4(c)(4)(i)(A). The form may also request other information required for purposes of tax or AML due diligence in the United States or in other countries. (vi) through (vii) [Reserved]. For further guidance, see § 1.1471– 3(c)(6)(vi) through (vii). (7) through (7)(ii) [Reserved]. For further guidance, see § 1.1471–3(c)(7) through (c)(7)(ii). (8) [Reserved]. For further guidance, see § 1.1471–3(c)(8). (i) through (iv) [Reserved]. For further guidance, see § 1.1471–3(c)(8)(i) through (iv). (v) Preexisting account. A withholding agent may rely on documentation furnished by a payee for a preexisting account held at another branch location of the same withholding agent or at a branch location of a member of the expanded affiliated group of the withholding agent if the withholding agent obtains and reviews copies of such documentation supporting the chapter 4 status designated for the payee and the withholding agent has no reason to know that, at the time the documentation is obtained by the withholding agent, the documentation is unreliable or incorrect. For example, the withholding agent may not rely on documentation furnished by a payee for a preexisting account held at another branch location of the same withholding agent or at a branch location of a member of the expanded affiliated group of the withholding agent if, based on information in the withholding agent’s account records, the withholding agent has reason to know that such documentation is unreliable or incorrect. (9) [Reserved]. For further guidance, see § 1.1471–3(c)(9). (i) [Reserved]. For further guidance, see § 1.1471–3(c)(9)(i). (ii) [Reserved]. For further guidance, see § 1.1471–3(c)(9)(ii). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (A) [Reserved]. For further guidance, see § 1.1471–3(c)(9)(ii)(A). (B) The third-party data provider must be in the business of providing credit reports or business reports to customers unrelated to it and must have reviewed all information it has for the entity and verified that such additional information does not conflict with the chapter 4 status claimed by the entity. For purposes of this paragraph (c)(9)(ii)(B), a customer is related to a third-party data provider if they have a relationship with each other that is described in section 267(b). (C) through (F) [Reserved]. For further guidance, see § 1.1471–3(c)(9)(ii)(C) through (F). (iii) through (iv)(D) [Reserved]. For further guidance, see § 1.1471– 3(c)(9)(iii) through (c)(9)(iv)(D). (v) Reliance upon documentation for accounts acquired in merger or bulk acquisition for value. A withholding agent that acquires an account from a predecessor or transferor in a merger or bulk acquisition of accounts for value is permitted to rely upon valid documentation (or copies of valid documentation) collected by the predecessor or transferor. In addition, a withholding agent that acquires an account in a merger or bulk acquisition of accounts for value, other than a related party transaction, from a U.S. withholding agent, a participating FFI that has completed all due diligence required under its agreement with respect to the accounts transferred, or a reporting Model 1 FFI that has completed all due diligence required pursuant to the applicable Model 1 IGA, may also rely upon the predecessor’s or transferor’s determination of the chapter 4 status of an account holder for a transition period of the lesser of six months from the date of the merger or until the acquirer knows that the claim of status is inaccurate or a change in circumstances occurs. At the end of the transition period, the acquirer will be permitted to rely upon the predecessor’s determination as to the chapter 4 status of the account holder only if the documentation that the acquirer has for the account holder, including documentation obtained from the predecessor or transferor, supports the chapter 4 status claimed. An acquirer that discovers at the end of the transition period that the chapter 4 status assigned by the predecessor or transferor to the account holder was incorrect and, as a result, has not withheld as it would have been required to but for its reliance upon the predecessor’s determination, will be required to withhold on payments made after the transition period, if any, to the PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 12835 account holder equal to the amount of tax that should have been withheld during the transition period but for the erroneous classification as to the account holder’s status. For purposes of this paragraph (c)(9)(v), a related party transaction is a merger or sale of accounts in which either the acquirer is in the same expanded affiliated group as the predecessor or transferor prior to or after the merger or acquisition or the predecessor or transferor (or shareholders of the predecessor or transferor) obtains a controlling interest in the acquirer or in a newly formed entity created for purposes of the merger or acquisition. See § 1.1471– 4(c)(2)(ii)(B) for an additional allowance for a participating FFI to rely upon the determination made by another participating FFI as to the chapter 4 status of an account obtained as part of a merger or bulk acquisition for value. (d) [Reserved]. For further guidance, see § 1.1471–3(d). (1) Reliance on pre-FATCA Form W– 8. To establish a payee’s status as a foreign individual, foreign government, government of a U.S. territory, or international organization, a withholding agent may rely upon a preFATCA Form W–8 in lieu of obtaining an updated version of the withholding certificate. This reliance is only available in the case of a payee that is an international organization if such payee is described under section 7701(a)(18). To establish the chapter 4 status of a payee that is not a foreign individual, a foreign government, or an international organization, a withholding agent may, for payments made prior to January 1, 2017, rely upon a pre-FATCA Form W–8 in lieu of obtaining an updated version of the withholding certificate if the withholding agent has one or more forms of documentary evidence described in paragraphs (c)(5)(ii), as necessary, to establish the chapter 4 status of the payee and the withholding agent has obtained any additional documentation or information required for the particular chapter 4 status (such as withholding statements, certifications as to owners, or required documentation for underlying owners), as set forth under the specific payee rules in paragraphs (d)(2) through (12) of this section. See paragraph (d)(4)(ii) and (iv) of this section for specific requirements applicable when relying upon a preFATCA Form W–8 for a participating FFI or registered deemed-compliant FFI. This paragraph (d)(1) does not apply to nonregistering local banks, FFIs with only low-value accounts, sponsored FFIs, owner-documented FFIs, territory financial institutions that are not the E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12836 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations beneficial owners of the payment, foreign central banks (other than a foreign central bank specifically identified as an exempt beneficial owner under a Model 1 IGA or Model 2 IGA), or international organizations not described under section 7701(a)(18). (2) [Reserved]. For further guidance, see § 1.1471–3(d)(2). (i) In general. A withholding agent must treat a payee as a U.S. person, including a payee that is a foreign branch of a U.S. person (other than a branch that is treated as a QI) or is an FFI that has elected to be treated as a U.S. person for tax purposes under section 953(d), if it has a valid Form W– 9 associated with the payee or if it must presume the payee is a U.S. person under the presumption rules set forth in paragraph (f) of this section. Consistent with the presumption rules in paragraph (f)(3) of this section, a withholding agent must treat a payee that has provided a valid Form W–9 as a specified U.S. person unless the Form W–9 contains a certification that the payee is other than a specified U.S. person. Notwithstanding the foregoing, a withholding agent receiving a Form W– 9 indicating that the payee is other than a specified U.S. person must treat the payee as a specified U.S. person if the withholding agent knows or has reason to know that the payee’s claim that it is other than a specified U.S. person is incorrect. For example, a withholding agent that receives a Form W–9 from a payee that is an individual would be required to treat the payee as a specified U.S. person regardless of whether the Form W–9 indicates that the payee is not a specified U.S. person, because an individual that is a U.S. person is not excepted from the definition of a specified U.S. person. (ii) [Reserved]. For further guidance, see § 1.1471–3(d)(2)(ii). (iii) Preexisting obligations. As an alternative to applying the rules in paragraphs (d)(2)(i) and (ii) of this section, a withholding agent that makes a payment with respect to a preexisting obligation may treat a payee as a U.S. person if it has a notation in its files that it has previously reviewed a Form W– 9 that established that the payee is a U.S. person and has retained the payee’s TIN. A withholding agent, other than a participating FFI or registered deemedcompliant FFI, may also treat a payee of a payment with respect to a preexisting obligation as a U.S. person if it has previously classified the payee as a U.S. person for purposes of chapters 3 or 61 and established (through the documentation or the application of the rules in § 1.6049–4(c)(1)(ii)) that the VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 payee is an exempt recipient for purposes of chapter 61. (3) through (3)(ii) [Reserved]. For further guidance, see § 1.1471–3(d)(3) through (d)(3)(ii). (4) [Reserved]. For further guidance, see § 1.1471–3(d)(4). (i) In general. Except as otherwise provided in paragraphs (d)(4)(ii) through (iv) or paragraphs (e)(3)(i) and (ii) of this section, a withholding agent may treat a payee as a participating FFI or registered deemed-compliant FFI only if the withholding agent has a withholding certificate identifying the payee as a participating FFI, registered deemed-compliant FFI, or branch thereof (including an entity that is disregarded as an entity separate from the FFI), and the withholding certificate contains a GIIN for the payee that is verified against the published IRS FFI list in the manner described in paragraph (e)(3) of this section (indicating when a withholding agent may rely upon a GIIN). For payments made prior to January 1, 2016, a registered deemed-compliant FFI that is a sponsored FFI must provide the GIIN of its sponsoring entity on the withholding certificate if the sponsored FFI has not obtained a GIIN. See paragraph (c)(3)(iii) of this section for additional requirements that apply to a valid withholding certificate provided by a participating FFI or registered deemed-compliant FFI that is a flowthrough entity or is acting as an intermediary with respect to the payment, or by a U.S. branch of a participating FFI or registered deemedcompliant FFI (including a U.S. entity that is disregarded as an entity separate from the FFI). (ii) Exception for payments made prior to January 1, 2017, with respect to preexisting obligations (transitional). For payments made prior to January 1, 2017, with respect to a preexisting obligation, a withholding agent may treat a payee as a participating FFI or registered deemed-compliant FFI, or branch thereof (including an entity that is disregarded as an entity separate from the FFI), if the payee has provided the withholding agent with a pre-FATCA Form W–8 and (either orally or in writing) its GIIN and has indicated whether it is a participating FFI or a registered deemed-compliant FFI (or whether such branch or disregarded entity is treated as a participating FFI or a registered deemed-compliant FFI), and the withholding agent has verified the GIIN of the FFI, branch, or disregarded entity, as the context requires, in the manner described in paragraph (e)(3) of this section. PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 (iii) Exception for offshore obligations. A withholding agent that makes a payment, other than a payment of U.S. source FDAP income, with respect to an offshore obligation may treat a payee as a participating FFI or registered deemed-compliant FFI, or branch thereof (including an entity that is disregarded as an entity separate from the FFI), if the payee provides the withholding agent with its GIIN and states whether the payee is a participating FFI or a registered deemed-compliant FFI, and the withholding agent verifies the GIIN in the manner described in paragraph (e)(3) of this section. A withholding agent that makes a payment of U.S. source FDAP income with respect to an offshore obligation may treat the payee as a participating FFI or registered deemed-compliant FFI, or branch thereof (including an entity that is disregarded as an entity separate from the FFI) if— (A) [Reserved]. For further guidance, see § 1.1471–3(d)(4)(iii)(A). (1) A written statement that contains the payee’s GIIN, states that the payee is the beneficial owner of the payment, and indicates whether the payee is treated as a participating FFI or a registered deemed-compliant FFI, as appropriate; and (2) [Reserved]. For further guidance, see § 1.1471–3(d)(4)(iii)(A)(2). (B) [Reserved]. For further guidance, see § 1.1471–3(d)(4)(iii)(B). (iv) [Reserved]. For further guidance, see § 1.1471–3(d)(4)(iv). (A) For payments made prior to January 1, 2015, a withholding agent may treat a payee that is an FFI or branch of an FFI (including an entity that is disregarded as an entity separate from the FFI) as a reporting Model 1 FFI if it receives a withholding certificate from the payee indicating that the payee is a reporting Model 1 FFI and the country in which the payee is a reporting Model 1 FFI, regardless of whether the certificate contains a GIIN for the payee. (B) [Reserved]. For further guidance, see § 1.1471–3(d)(4)(iv)(B). (C) For payments made prior to January 1, 2015, with respect to an offshore obligation, a withholding agent may treat a payee as a reporting Model 1 FFI if the payee informs the withholding agent that the payee is a reporting Model 1 FFI and provides the country in which the payee is a reporting Model 1 FFI. In the case of a payment of U.S. source FDAP income, such payee must also provide a written statement that it is the beneficial owner and documentary evidence supporting the payee’s claim of foreign status (as E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations described in paragraph (c)(5)(i) of this section). (D) For payments made on or after January 1, 2015, that do not constitute U.S. source FDAP income, the withholding agent may continue to treat a payee as a reporting Model 1 FFI if the payee provides the withholding agent with its GIIN, either orally or in writing, and the withholding agent verifies the GIIN in the manner described in paragraph (e)(3) of this section. (v) Reason to know. Except as otherwise provided in this paragraph (d)(4), a withholding certificate or written statement pursuant to which the payee claims a status as a participating FFI or registered deemed-compliant FFI but does not provide the payee’s GIIN or provides a GIIN that does not appear on the current published IRS FFI list will be invalid for purposes of chapter 4 beginning on the date that is 90 days after the date that the claim is made by the payee. The payee will be treated as an undocumented payee beginning on the date that the form is invalid, and will be subject to withholding on payments made on or after that date until valid documentation (which includes a confirmed GIIN under paragraph (e)(3)(i) of this section) is provided. A withholding agent that has withheld as required in the previous sentence may apply reimbursement or set-off procedures, as described in § 1.1474–2(a), if it is later determined that the payee appeared on the IRS FFI list as a participating FFI or registered deemed-compliant FFI at the time of payment. (5) [Reserved]. For further guidance, see § 1.1471–3(d)(5). (i) In general. Except as otherwise provided in this paragraph (d)(5), a withholding agent may treat a payee as a certified deemed-compliant FFI, other than a sponsored, closely held investment vehicle, if the withholding agent has a withholding certificate that identifies the payee as a certified deemed-compliant FFI, and the withholding certificate contains a certification by the payee that it meets the requirements to qualify as the type of certified deemed-compliant FFI identified on the withholding certificate. See paragraph (c)(3)(iii) of this section for additional requirements that apply to a valid withholding certificate provided by a certified deemed-compliant FFI that is a flowthrough entity or is acting as an intermediary with respect to the payment, or by a U.S. branch of a certified deemed-compliant FFI. (ii) Sponsored, closely held investment vehicles— (A) In general. A withholding agent may treat a payee as VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 a sponsored, closely held investment vehicle described in § 1.1471–5(f)(2)(iii) if the withholding agent can reliably associate the payment with a withholding certificate that identifies the payee as a sponsored, closely held investment vehicle and includes the sponsoring entity’s GIIN, which the withholding agent has verified against the published IRS FFI list in the manner described in paragraph (e)(3) of this section. In addition to the standards of knowledge rules indicated in paragraph (e) of this section, a withholding agent will have reason to know that the payee is not a sponsored, closely held investment vehicle described in § 1.1471–5(f)(2)(iii) if its AML due diligence indicates that the payee has in excess of 20 individual investors that own direct and/or indirect interests in the payee. See paragraph (c)(3)(iii) of this section for additional requirements that apply to a valid withholding certificate provided by a sponsored, closely held investment vehicle that is a flow-through entity or is acting as an intermediary with respect to the payment, or by a U.S. branch of such vehicle. (B) Offshore obligations. A withholding agent that makes a payment with respect to an offshore obligation may treat a payee as a sponsored, closely held investment vehicle if it obtains a written statement that indicates that the payee is a sponsored, closely held investment vehicle, and provides the sponsoring entity’s GIIN, which the withholding agent has verified in the manner described in paragraph (e)(3) of this section. In the case of a payment of U.S. source FDAP income, the written statement must also indicate that the payee is the beneficial owner and must be supplemented with documentary evidence supporting the payee’s claim of foreign status (as described in paragraph (c)(5)(i) of this section). (iii) Investment advisors and investment managers. (A) In general. A withholding agent may treat a payee as an investment advisor and investment manager described in § 1.1471–5(f)(2)(v) if the withholding agent can reliably associate the payment with a withholding certificate that identifies the payee as an investment advisor and investment manager. In addition to the standards of knowledge rules indicated in paragraph (e) of this section, a withholding agent will have reason to know that the payee is not an investment advisor and investment manager described in § 1.1471–5(f)(2)(v) if its AML due diligence documentation indicates that the payee has financial accounts. PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 12837 (B) Offshore obligations. A withholding agent that makes a payment with respect to an offshore obligation may treat a payee as an investment advisor and investment manager described in § 1.1471–5(f)(2)(v) if it obtains a written statement that indicates that the payee is an investment advisor and investment manager. In the case of a payment of U.S. source FDAP income, the written statement must also indicate that the payee is the beneficial owner and must be supplemented with documentary evidence supporting the payee’s claim of foreign status (as described in paragraph (c)(5)(i) of this section). (6) [Reserved]. For further guidance, see § 1.1471–3(d)(6). (i) through (vi) [Reserved]. For further guidance, see § 1.1471–3(d)(6)(i) through (vi). (vii) [Reserved]. For further guidance, see § 1.1471–3(d)(6)(vii). (A) [Reserved]. For further guidance, see § 1.1471–3(d)(6)(vii)(A). (1) The payment is made with respect to an offshore obligation that has a balance or value not exceeding $1,000,000 on the later of June 30, 2014, or the last day of the calendar year in which the account was opened, and the last day of each subsequent year preceding the payment, applying the aggregation principles of § 1.1471– 5(b)(4); (2) through (5) [Reserved]. For further guidance, see § 1.1471–3(d)(6)(vii)(A)(2) through (5). (B) [Reserved]. For further guidance, see § 1.1471–3(d)(6)(vii)(B). (7) through (10)(iii) [Reserved]. For further guidance, see § 1.1471–3(d)(7) through (d)(10)(iii). (11) [Reserved]. For further guidance, see § 1.1471–3(d)(11). (i) through (vii)(B)(3) [Reserved]. For further guidance, see § 1.1471– 3(d)(11)(i) through (d)(11)(vii)(B)(3). (viii) [Reserved]. For further guidance, see § 1.1471–3(d)(11)(viii). (A) Exception for payments made prior to January 1, 2017, with respect to preexisting obligations of $1,000,000 or less (transitional). A withholding agent that makes a payment prior to January 1, 2017, with respect to a preexisting obligation with a balance or value not exceeding $1,000,000 on June 30, 2014, and December 31, 2015, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), may treat a payee as an excepted territory NFFE described in § 1.1472–1(c)(1)(iii) if the withholding agent— (1) through (3) [Reserved]. For further guidance, see § 1.1471– 3(d)(11)(viii)(A)(1) through (3). E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12838 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (B) through (B)(2) [Reserved]. For further guidance, see § 1.1471– 3(d)(11)(viii)(B) through (d)(11)(viii)(B)(2). (C) Exception for preexisting offshore obligations of $1,000,000 or less. A withholding agent that makes a payment with respect to an offshore obligation that is also a preexisting obligation with a balance or value not exceeding $1,000,000 on June 30, 2014 (or the effective date of the FFI agreement for a withholding agent that is a participating FFI) and the last day of each subsequent calendar year preceding the payment, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), may rely upon its review conducted for AML due diligence purposes to determine whether the owners of the payee are bona fide residents of the U.S. territory in which the payee is organized, in lieu of obtaining a written statement or documentary evidence described in paragraph (d)(11)(viii)(B) of this section. The preceding sentence applies only if the withholding agent is subject, with respect to such account, to the laws of a FATF-compliant jurisdiction and has identified the residence of the owners. The withholding agent relying upon this paragraph (d)(11)(viii)(C) must still obtain a written statement, documentary evidence (as provided in paragraph (d)(11)(viii)(B) of this section), or preexisting account documentary evidence (as described in paragraph (c)(5)(ii)(B) of this section) establishing that the payee is an entity other than a depository institution, custodial institution, or specified insurance company organized in a U.S. territory. (ix) through (ix)(C) [Reserved]. For further guidance, see § 1.1471– 3(d)(11)(ix) through (d)(11)(ix)(C). (x) Identifying a direct reporting NFFE—(A) In general. A withholding agent may treat a payment as having been made to a direct reporting NFFE if it has a withholding certificate that identifies the payee as a direct reporting NFFE and the withholding certificate contains a GIIN for the payee that is verified against the published IRS FFI list in the manner described in paragraph (e)(3)(iii) of this section (indicating when a withholding agent may rely upon a GIIN). (B) Exception for offshore obligations. A withholding agent that makes a payment with respect to an offshore obligation may treat the payment as made to a direct reporting NFFE if the withholding agent has— (1)(i) General documentary evidence (as described in paragraph (c)(5)(ii)(A) of this section) for the payee providing sufficient information to determine that VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 the payee is a foreign entity that is not a financial institution; or (ii) A written statement that the payee is a foreign entity that is not a financial institution and, for a payment of U.S. source FDAP income, documentary evidence supporting the payee’s claim of foreign status (as described in paragraph (c)(5)(i) of this section), and (2) Received (either orally or in writing) a GIIN from the direct reporting NFFE and has verified the GIIN in the manner described in paragraph (e)(3)(iii) of this section. (C) Special rule for preexisting offshore obligations. A withholding agent that makes a payment with respect to an offshore obligation that is also a preexisting obligation may treat the payee as a direct reporting NFFE if the withholding agent has preexisting account documentary evidence (as described in paragraph (c)(5)(ii)(B) of this section) providing sufficient information to determine that the payee is a foreign entity that is not a financial institution and it has received (either orally or in writing) a GIIN from the direct reporting NFFE and has verified the GIIN in the manner described in paragraph (e)(3)(iii) of this section. (xi) Identifying a sponsored direct reporting NFFE—(A) In general. A withholding agent may treat a payment as having been made to a sponsored direct reporting NFFE if it has a withholding certificate that identifies the payee as a sponsored direct reporting NFFE and the withholding certificate includes the sponsored direct reporting NFFE’s GIIN, which the withholding agent has verified against the published IRS FFI list in the manner described in paragraph (e)(3)(iv) of this section (indicating when a withholding agent may rely upon a GIIN). For payments prior to January 1, 2016, a sponsored direct reporting NFFE may provide the GIIN of its sponsoring entity on the withholding certificate if the sponsored direct reporting NFFE has not obtained a GIIN. (B) Exception for offshore obligations. A withholding agent that makes a payment with respect to an offshore obligation may treat the payment as made to a sponsored direct reporting NFFE if the withholding agent has— (1) A written statement that the payee is a foreign entity that is a sponsored direct reporting NFFE and, for a payment of U.S. source FDAP income, documentary evidence supporting the payee’s claim of foreign status (as described in paragraph (c)(5)(i) of this section), and (2) Received (either orally or in writing) the GIIN of the sponsored direct reporting NFFE and has verified the PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 GIIN in the manner described in paragraph (e)(3)(iv) of this section. For payments prior to January 1, 2016, such requirement may be fulfilled by receiving (either orally or in writing) the GIIN of the sponsoring entity to the extent that the sponsored direct reporting NFFE has not obtained a GIIN. (xii) Identification of excepted interaffiliate FFI. (A) In general. A participating FFI may treat a payee as an excepted interaffiliate FFI described in § 1.1471– 5(e)(5)(iv) if it has obtained a withholding certificate identifying the payee as such an entity. (B) Offshore obligations. A participating FFI that makes a payment with respect to an offshore obligation may treat the payment as made to an excepted inter-affiliate FFI described in § 1.1471–5(e)(5)(iv) if the participating FFI obtains a written statement in which the payee certifies that it is a foreign entity operating as an excepted interaffiliate FFI and that it is a member of an expanded affiliated group of participating FFIs or registered deemedcompliant FFIs. In the case of a payment of U.S. source FDAP income, the written statement must also indicate that the payee is the beneficial owner and must be supplemented with documentary evidence (as described in § 1.1471– 3(c)(5)(i)) that provides the participating FFI with sufficient information to establish that the payee is an excepted inter-affiliate FFI described in § 1.1471– 5(e)(5)(iv). (C) Reason to know. A participating FFI has reason to know that an entity is not an excepted inter-affiliate FFI if it makes any payments (other than a payment of bank deposit interest) to such entity. (12) [Reserved]. For further guidance, see § 1.1471–3(d)(12). (i) through (ii) [Reserved]. For further guidance, see § 1.1471–3(d)(12)(i) through (ii). (iii) [Reserved]. For further guidance, see § 1.1471–3(d)(12)(iii). (A) In general. A passive NFFE will be required to provide to the withholding agent either a written certification (contained on a withholding certificate or in a written statement) that it does not have any substantial U.S. owners or the name, address, and TIN of each substantial U.S. owner of the NFFE, to avoid being withheld upon under § 1.1472–1(b). (B) Exception for preexisting obligations of $1,000,000 or less (transitional). A withholding agent that makes a payment prior to January 1, 2017, with respect to a preexisting obligation with a balance or value not exceeding $1,000,000 on June 30, 2014, E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations and December 31, 2015, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), may rely upon its review conducted for AML due diligence purposes to identify any substantial U.S. owners of the payee in lieu of obtaining the certification or information required in paragraph (d)(12)(iii)(A) of this section if the withholding agent is subject, with respect to such obligation, to the laws of a FATF-compliant jurisdiction and has identified the residence of any controlling persons (within the meaning of the withholding agent’s AML due diligence rules). A withholding agent that makes a payment with respect to an offshore obligation that is also a preexisting obligation with a balance or value not exceeding $1,000,000 on June 30, 2014, (or the effective date of the FFI agreement for a withholding agent that is a participating FFI) and the last day of each subsequent calendar year preceding the payment, applying the aggregation principles of § 1.1471– 5(b)(4)(iii), may rely upon its review conducted for AML due diligence purposes to identify any substantial U.S. owners of the payee in lieu of obtaining the certification or information required in paragraph (d)(12)(iii)(A) of this section if the withholding agent is subject, with respect to such obligation, to the laws of a FATF-compliant jurisdiction and has identified the residence of any controlling persons (within the meaning of the withholding agent’s AML due diligence rules). (e) [Reserved]. For further guidance, see § 1.1471–3(e). (1) [Reserved]. For further guidance, see § 1.1471–3(e)(1). (2) Notification by the IRS. A withholding agent that has received notification by the IRS that a claim of status as a U.S. person, a participating FFI, a deemed-compliant FFI, or other entity entitled to a reduced rate of withholding under section 1471 or 1472 is incorrect knows that such a claim is incorrect beginning on the date that is 30 days after the date the notice is received. (3) GIIN verification. (i) In general. A withholding agent that has received a payee’s claim of status as a participating FFI or registered deemed-compliant FFI, and that is required under paragraph (d)(4) of this section to confirm that the FFI or branch thereof (including an entity that is disregarded as an entity separate from the FFI) claiming status as a participating FFI or registered deemedcompliant FFI has a GIIN that appears on the published IRS FFI list, has reason to know that such payee is not such a financial institution if the payee’s name VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (including a name reasonably similar to the name the withholding agent has on file for the payee) and GIIN do not appear on the most recently published IRS FFI list within 90 days of the date that the claim is made. For purposes of this paragraph (e)(3)(i), the GIIN that the withholding agent must confirm is, with respect to a payee that is a participating FFI or registered deemed-compliant FFI, the GIIN assigned to the FFI identifying its country of residence for tax purposes (or place of organization if the FFI has no country of residence) or, with respect to a payment that is made to a branch of, or an entity that is disregarded as an entity separate from, a participating FFI or registered deemed-compliant FFI located outside of the FFI’s country of residence or organization, the GIIN assigned to the FFI identifying the country in which the branch or disregarded entity receiving the payment is located. The withholding agent will have reason to know that a withholdable payment is made to a limited branch (including a disregarded entity) of a participating or registered deemed-compliant FFI when it is directed to make the payment to an address in a jurisdiction other than that of the participating FFI or registered deemed-compliant FFI (or branch of, or disregarded entity wholly owned by, such FFI) that is identified as the FFI (or branch of, or disregarded entity wholly owned by, such FFI) that is supposed to receive the payment and for which the FFI’s GIIN is not confirmed as described in the preceding sentence. For example, if a participating FFI has identified Branch A, located in Jurisdiction A, as its branch to receive withholdable payments on a withholding certificate described in § 1.1471–3(e)(3)(ii), but subsequently directs the withholding agent to make the payment to an address of the FFI in Jurisdiction B, then the withholding agent will have reason to know that the payment is made to a limited branch, unless the withholding agent obtains documentation to treat the payment to the address in Jurisdiction B as made to a payee that is a participating FFI or deemed-compliant FFI. An FFI whose registration with the IRS as a participating FFI or a registered deemed-compliant FFI is in process but has not yet received a GIIN may provide a withholding agent with a Form W–8 claiming the chapter 4 status it applied for and writing ‘‘applied for’’ in the box for the GIIN. In such case, the withholding agent will have 90 days from the date it receives the Form W– 8 to obtain a GIIN and to verify the accuracy of the GIIN against the published IRS FFI list before it has PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 12839 reason to know that the payee is not a participating FFI or registered deemedcompliant FFI. If an FFI is removed from the published IRS FFI list, the withholding agent knows that such FFI is not a participating FFI or registered deemed-compliant FFI on the earlier of the date that the withholding agent discovers that the FFI has been removed from the list or the date that is one year from the date the FFI’s GIIN was actually removed from the list. (ii) Special rules for reporting Model 1 FFIs. Prior to January 1, 2015, a withholding agent that receives an FFI’s claim of status as a reporting Model 1 FFI will not be required to confirm that the FFI has a GIIN that appears on the published IRS FFI list. A withholding agent has reason to know that the FFI is not a reporting Model 1 FFI if the withholding agent does not have a permanent residence address for the FFI, or an address of the relevant branch of the FFI, located in the country in which the FFI claims to be a reporting Model 1 FFI, or the withholding agent is making a payment to a branch of the FFI at an address in a country that does not have in effect a Model 1 IGA. (iii) Special rules for direct reporting NFFEs. A withholding agent that has received a payee’s claim of status as a direct reporting NFFE and that is required under paragraph (d)(11)(x) of this section to confirm that the entity claiming status as a direct reporting NFFE has a GIIN that appears on the published IRS FFI list, has reason to know that such payee is not such a NFFE if the payee’s name (including a name reasonably similar to the name the withholding agent has on file for the payee) and GIIN do not appear on the most recently published IRS FFI list within 90 days of the date that the claim is made. A payee whose registration with the IRS as a direct reporting NFFE is in process but has not yet received a GIIN may provide a withholding agent with a Form W–8 claiming the chapter 4 status it applied for and writing ‘‘applied for’’ in the box for the GIIN. In such case, the withholding agent will have 90 days from the date it receives the Form W–8 to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a direct reporting NFFE. If a direct reporting NFFE is removed from the published IRS FFI list, the withholding agent knows that such NFFE is not a direct reporting NFFE on the earlier of the date that the withholding agent discovers that the NFFE has been removed from the list or the date that is one year from the date the NFFE’s GIIN was actually removed from the list. E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12840 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (iv) Special rules for sponsored direct reporting NFFEs and sponsoring entities—(A) Sponsored direct reporting NFFEs. A withholding agent that has received a payee’s claim of status as a sponsored direct reporting NFFE and that is required under paragraph (d)(11)(xi) of this section to confirm that the entity claiming status as a sponsored direct reporting NFFE has a GIIN that appears on the published IRS FFI list, has reason to know that such payee is not such a NFFE if its name (including a name reasonably similar to the name the withholding agent has on file for the payee) and GIIN do not appear on the most recently published IRS FFI list within 90 days of the date that the claim is made. A sponsored direct reporting NFFE whose registration with the IRS as a sponsored direct reporting NFFE is in process but has not yet received a GIIN may provide a withholding agent with a Form W–8 claiming the chapter 4 status it applied for and writing ‘‘applied for’’ in the box for the GIIN. In such case, the withholding agent will have 90 days from the date it receives the Form W–8 to verify the accuracy of the GIIN against the published IRS FFI list before it has reason to know that the payee is not a sponsored direct reporting NFFE. If a sponsored direct reporting NFFE is removed from the published IRS FFI list, the withholding agent knows that such NFFE is not a sponsored direct reporting NFFE on the earlier of the date that the withholding agent discovers that the sponsored entity has been removed from the list or the date that is one year from the date the sponsored entity’s GIIN was actually removed from the list. (B) Sponsoring entities (transitional rule). For payments made prior to January 1, 2016, a withholding agent that has received a payee’s claim of status as a sponsored direct reporting NFFE has reason to know that such payee is not such a NFFE if the name of its sponsoring entity (including a name reasonably similar to the name the withholding agent has on file for the sponsoring entity) and the GIIN of its sponsoring entity do not appear on the most recently published IRS FFI list within 90 days of the date that the claim is made. A sponsoring entity whose registration with the IRS is in process but has not yet received a GIIN may provide a withholding agent with a Form W–8 claiming the chapter 4 status it applied for and writing ‘‘applied for’’ in the box for the GIIN. In such case, the withholding agent will have 90 days from the date it receives the Form W– 8 to verify the accuracy of the GIIN against the published IRS FFI list before VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 it has reason to know that the payee is not a sponsored direct reporting NFFE. If the sponsoring entity of the NFFE is removed from the published IRS FFI list, the withholding agent knows that such NFFE is not a sponsored direct reporting NFFE on the earlier of the date that the withholding agent discovers that the sponsoring entity has been removed from the list or the date that is one year from the date the sponsoring entity’s GIIN was actually removed from the list. (4) Reason to know. A withholding agent has reason to know that a claim of chapter 4 status is unreliable or incorrect if its knowledge of relevant facts or statements contained in the withholding certificate or other documentation is such that a reasonably prudent person in the position of the withholding agent would question the claim being made. For an obligation other than a preexisting obligation, a withholding agent has reason to know that a person’s claim of chapter 4 status is unreliable or incorrect if any information contained in its account opening files or other customer account files, including documentation collected for AML due diligence purposes, conflicts with the chapter 4 status being claimed. A withholding agent will not, however, have reason to know that a person’s claim of chapter 4 status is unreliable or incorrect based on documentation collected for AML due diligence purposes until the date that is 30 days after the obligation is created. In addition to the specific standards of knowledge set forth in this paragraph (e) regarding a person’s claim of chapter 4 status, a withholding agent is also required to apply any specific standards of knowledge applicable to the chapter 4 status claimed as set forth in paragraph (d) of this section. A withholding agent that has obtained documentation to reliably associate a payment to a foreign person under paragraph (c) of this section has reason to know that the person’s claim of foreign status is unreliable or incorrect only to the extent provided in this paragraph (e)(4). See also § 1.1441– 1(e)(4)(ii)(D) for requirements that apply when a change in circumstances occurs for purposes of chapter 3 and the related grace period allowed under § 1.1441– 1(b)(3)(iv). The limits on reason to know for multiple obligations held by the same person set forth in § 1.1441– 7(b)(11) shall apply by substituting the term chapter 4 status for the term foreign status. See § 1.1471–3(e)(4)(vii) for the limits on reason to know with respect to a preexisting obligation. (i) Reason to know regarding an entity’s chapter 4 status. A withholding PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 agent has reason to know that a withholding certificate, written statement, or documentary evidence provided by or on behalf of an entity is unreliable or incorrect if there is information on the face of the documentation or in the withholding agent’s account files that conflicts with the entity’s claim regarding its chapter 4 status. For example, a withholding agent has reason to know that an entity’s claim that it is an excepted NFFE is unreliable or incorrect if the withholding agent has obtained a financial statement or credit report for AML purposes that indicates that the entity is engaged in business as a financial institution. See also paragraph (e)(4) of this section for the 30-day period before a withholding agent has reason to know a claim is unreliable or incorrect based on AML information. Further, a withholding agent that has classified an entity as engaged in a particular type of business based on its records, such as through the use of a standardized industry coding system, has reason to know that the chapter 4 status claimed by the entity is unreliable or incorrect if the entity’s claim conflicts with the withholding agent’s classification of the entity’s business type. (ii) Reason to know applicable to withholding certificates. (A) In general. A withholding agent has reason to know that a withholding certificate provided by a person is unreliable or incorrect if the withholding certificate is incomplete with respect to any item on the certificate that is relevant to the claims made by the person, the withholding certificate contains any information that is inconsistent with the person’s claim, the withholding agent has other account information that is inconsistent with the person’s claim, or the withholding certificate lacks information necessary to establish entitlement to an exemption from withholding for chapter 4 purposes. Except as otherwise provided in this paragraph (e)(4)(ii)(A), a withholding agent that has obtained a withholding certificate to reliably associate a payment to a foreign person under paragraph (c) of this section has reason to know that the person’s claim of foreign status is unreliable or incorrect only if there are U.S. indicia, as described in § 1.1441–7(b)(5), associated with the person and for which appropriate documentation sufficient to cure the U.S. indicia has not been obtained in accordance with § 1.1441–7(b) within 90 days of when the U.S. indicia was first identified by the withholding agent. See also § 1.1441–1(e)(4)(ii)(D) for requirements E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations that apply when a change in circumstances occurs for purposes of chapter 3 and the related grace period allowed under § 1.1441–1(b)(3)(iv). A withholding agent that relies on an agent to review and maintain a withholding certificate is considered to know or have reason to know the facts within the knowledge of the agent. (B) Withholding certificate provided by an FFI. A withholding agent that obtains a withholding certificate to reliably associate a payment to a participating FFI, a registered deemedcompliant FFI, a sponsoring entity, or a sponsored FFI does not need to apply the standards of knowledge described in § 1.1441–7(b)(5) if it has confirmed the FFI’s GIIN on the current published IRS FFI list, in the manner described under paragraph (e)(3) of this section, within 90 days of receipt of the withholding certificate. (iii) Reason to know applicable to written statements. A withholding agent must apply the standards of knowledge applicable to withholding certificates, as set forth in paragraph (e)(4)(ii) of this section, to determine whether it has reason to know that a written statement is unreliable or incorrect in terms of establishing a person’s claim of foreign status. The rules under paragraph (e)(4)(ii) shall be applied by substituting the term written statement for withholding certificate. (iv) Reason to know applicable to documentary evidence. (A) In general. A withholding agent may not treat documentary evidence provided by a person as valid if the documentary evidence does not reasonably establish the identity of the person presenting the documentary evidence. For example, documentary evidence is not valid if it is provided in person by an individual and the photograph or signature on the documentary evidence does not match the appearance or signature of the person presenting the document. A withholding agent may not treat documentary evidence as valid if the documentary evidence contains information that is inconsistent with the person’s claim as to its chapter 4 status, the withholding agent has other account information that is inconsistent with the person’s chapter 4 status, or the documentary evidence lacks information necessary to establish the person’s chapter 4 status. Additionally, a withholding agent that has obtained documentary evidence to reliably associate a payment to a foreign person under paragraph (c) of this section has reason to know that the person’s claim of foreign status is unreliable or incorrect only if there are U.S. indicia, VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 as described in § 1.1441–7(b)(8), associated with the person and appropriate documentation sufficient to cure the U.S. indicia has not been obtained in accordance with § 1.1441– 7(b) within 90 days of when the U.S. indicia was first identified by the withholding agent. See also § 1.1441– 1(e)(4)(ii)(D) for requirements when a change in circumstances occurs for purposes of chapter 3 and the related grace period allowed under § 1.1441– 1(b)(3)(iv). (B) Standards of knowledge applicable to certain types of documentary evidence—(1) Financial statement. A withholding agent that obtains a financial statement for purposes of establishing that a foreign payee meets a certain asset threshold has reason to know that the chapter 4 status claimed is unreliable or incorrect only if the total assets shown on the financial statement for the payee, and if relevant the payee’s expanded affiliated group, are not within the permissible thresholds, or the footnotes to the financial statement indicate that the payee is not a foreign entity or is not a type of FFI eligible for the chapter 4 status claimed. A withholding agent that obtains a financial statement for purposes of establishing that the payee is an active NFFE will be required to review the balance sheet and income statement to determine whether the payee meets the income and asset thresholds set forth in § 1.1472– 1(c)(1)(iv) and the footnotes of the financial statement for an indication that the payee is not a foreign entity or is a financial institution. A withholding agent that obtains a financial statement for purposes of establishing a chapter 4 status for a payee that does not require the payee to meet an asset or income threshold will be required to review only the footnotes to the financial statement to determine whether the financial statement supports the claim of chapter 4 status. A withholding agent that is not relying upon a financial statement to establish the chapter 4 status of the payee (for example because it has other documentation that establishes the payee’s chapter 4 status) is not required to independently evaluate the financial statement solely because the withholding agent also has collected the financial statement in the course of its account opening or other procedures. (2) Organizational documents. A withholding agent that obtains organizational documents for a payee solely for the purpose of supporting the chapter 4 status claimed by the entity will only be required to review the document sufficiently to establish that PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 12841 the entity is a foreign person and that the purposes for which the entity was formed and its basic activities appear to be of a type consistent with the chapter 4 status claimed, unless otherwise specified in paragraph (d) of this section. A withholding agent that obtains organizational documents for the purpose of establishing that an entity has a particular chapter 4 status will only be required to review the document to the extent needed to establish that the entity is a foreign person, that the requirements applicable to the particular chapter 4 status are met, and that the document was executed, but will not be required to review the remainder of the document. (v) Specific standards of knowledge applicable when only documentary evidence is a code or classification described in paragraph (c)(5)(ii)(B) of this section. A withholding agent may not rely upon a classification described in paragraph (c)(5)(ii)(B) of this section or a standardized industry coding system to treat an entity as having a foreign status if there are U.S. indicia described in paragraph (e)(4)(v)(A) of this section associated with the entity, unless such U.S. indicia are cured in the manner set forth in paragraph (e)(4)(v)(B) of this section. (A) through (A)(7) [Reserved]. For further guidance, see § 1.1471– 3(e)(4)(v)(A) through (e)(4)(v)(A)(7). (B) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(v)(B). (1) If there are U.S. indicia described in paragraphs (e)(4)(v)(A)(1) through (4) of this section associated with the entity, the withholding agent may treat the entity as a foreign person only if the withholding agent obtains a withholding certificate for the entity and one form of documentary evidence, described in paragraph (c)(5) of this section, that establishes the entity’s status as a foreign person (such as a certificate of incorporation). (2) If there are U.S. indicia described in paragraphs (e)(4)(v)(A)(1) through (4) of this section associated with the entity and the withholding agent is making a payment with respect to an offshore obligation, the withholding agent may also treat the entity as a foreign person if the withholding agent obtains a withholding certificate for the entity and the withholding agent treats the entity as foreign for purposes of foreign tax reporting. A withholding agent will treat an entity as foreign for purposes of foreign tax reporting only if the withholding agent classifies the entity as a resident of the country in which the obligation is maintained, the withholding agent is required to report a payment made to the entity annually E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12842 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations on a tax information statement that is filed with the tax authority of the country in which the account is maintained as part of that country’s resident reporting requirements, and that country has a tax information exchange agreement or income tax treaty in effect with the United States. (3) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(v)(B)(3). (vi) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(vi). (A) through (A)(2) [Reserved]. For further guidance, see § 1.1471– 3(e)(4)(vi)(A) through (e)(4)(vi)(A)(2). (B) Limits on reason to know with respect to documentation received from participating FFIs and registered deemed-compliant FFIs that are intermediaries or flow-through entities. A withholding agent that receives documentation from a participating FFI or registered deemed-compliant FFI that is not the payee must apply the requirements of paragraph (e)(4)(vi)(A) of this section, except that the withholding agent may rely upon the chapter 4 status provided by the participating FFI or registered deemedcompliant FFI in the withholding statement unless the withholding agent has information that conflicts with the chapter 4 status provided. If underlying documentation is provided for the payee and information in the documentation or in the withholding agent’s records conflicts with the chapter 4 status claimed, the withholding agent has reason to know that the chapter 4 status claimed is unreliable or incorrect. A withholding agent is not, however, required to verify information contained in documentation provided by an intermediary or flow-through entity that is a participating FFI or registered deemed-compliant FFI that is not facially incorrect and is not required to obtain supporting documentation for the payee in addition to a withholding certificate unless the withholding agent obtains such documentation for purposes of chapters 3 or 61 or unless the withholding agent knows that the review conducted by the participating FFI or registered deemed-compliant FFI for purposes of chapter 4 was not adequate. For example, a withholding agent that receives a withholding statement from a participating FFI that is an intermediary stating that the payee is a registered deemed-compliant FFI is only required to determine that any withholding certificate provided for the payee contains a GIIN and that the GIIN does not appear to be facially invalid (for example, because it does not contain the correct amount of digits), but is not subject to the requirements set forth in paragraph (e)(3) of this section. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 Similarly, a withholding agent that receives from a participating FFI that is a partnership a withholding statement claiming that the payee is an active NFFE has reason to know that the claim is unreliable or incorrect if it receives a withholding statement that contains a U.S. address for the payee unless the partnership also provides a copy of documentation sufficient to cure the U.S. indicia in the manner set forth in paragraph (e) of this section or the withholding statement indicates that appropriate documentation sufficient to cure the U.S. indicia in the manner set forth in paragraph (e) of this section has been obtained and provides details of such documentation, such as the type of documentation and an identification number of the person contained in the document. (vii) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(vii). (A) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(vii)(A). (B) Reason to know there are U.S. indicia associated with preexisting obligations. With respect to a preexisting obligation, a withholding agent may apply the limits on reason to know described in § 1.1441–7(b)(3)(ii) for a person that the withholding agent has previously documented for purposes of chapters 3 or 61 (applied without regard to the fact that section 1441 generally applies to reportable amounts under chapter 3 and without regard to whether the person was so documented before July 1, 2014). A withholding agent that applies the limits on reason to know described in § 1.1441–7(b)(3)(ii) must, however, review for U.S. indicia any additional documentation upon which the withholding agent is relying to determine the chapter 4 status of the person, if any. (viii) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(viii). (A) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(viii)(A). (1) through (3) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(viii)(A)(1) through (3). (4) Is a spouse or unmarried child under the age of 21 years of an individual described in one of the paragraphs (e)(4)(viii)(A)(1) through (3) of this section; (B) through (D) [Reserved]. For further guidance, see § 1.1471–3(e)(4)(viii)(B) through (D). (5) through (6) [Reserved]. For further guidance, see § 1.1471–3(e)(5) through (6). (f) [Reserved]. For further guidance, see § 1.1471–3(f). (1) In general. A withholding agent that cannot, prior to the payment, PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 reliably associate (within the meaning of paragraph (c) of this section) the payment with valid documentation may rely on the presumptions of this paragraph (f) to determine the status of the payee (or other person receiving the payment) as a U.S. or foreign person and such person’s other relevant characteristics (for example, as a nonparticipating FFI). Paragraph (f)(2) of this section provides the presumption rules with respect to classification as an individual or entity. Paragraph (f)(3) of this section provides the presumption rules to determine a payee’s U.S. or foreign status. Paragraph (f)(4) of this section provides the presumption rules with respect to an entity’s chapter 4 status. Paragraph (f)(5) of this section provides the presumption rules with respect to an intermediary or flowthrough entity. Paragraph (f)(6) of this section provides the presumption rules with respect to effectively connected income paid to a U.S. branch of a payee. Paragraph (f)(7) of this section provides the presumption rules that apply to a payment made to joint payees. Paragraph (f)(8) of this section provides rules for how a payee may rebut the presumptions described in this paragraph (f). Paragraph (f)(9) of this section provides the consequences to a withholding agent that fails to withhold in accordance with the presumptions set forth in this paragraph (f) or that has actual knowledge or reason to know facts that are contrary to the presumptions set forth in this paragraph (f). (2) Presumptions of classification as an individual or entity and entity as the beneficial owner. A withholding agent that cannot reliably associate a payment with a valid withholding certificate, or that has received valid documentary evidence (as described in paragraph (c)(5) of this section), but cannot determine a payee’s status as an individual or an entity from the documentary evidence, must apply the presumption rules of § 1.1441–1(b)(3)(ii) to determine the payee’s classification as an individual, trust, partnership, corporation, intermediary, or flowthrough entity. Additionally, a withholding agent that receives valid documentary evidence with respect to an entity must apply the rules under § 1.1441–1(b)(3)(ii) to determine when it may treat such entity as a beneficial owner. (3) Presumptions of U.S. or foreign status. If a withholding agent cannot reliably associate a payment with a valid withholding certificate or valid documentary evidence from which it is possible to determine the payee’s U.S. or foreign status, it must apply the E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations presumption rules of § 1.1441– 1(b)(3)(iii) to determine the U.S. or foreign status of the payee (substituting the term withholdable payment for the term payment). In the case of a payment that a withholding agent can reliably associate with valid documentation that indicates the payment is made to a U.S. person but does not indicate whether the person is a specified U.S. person, the payment will be presumed made to a specified U.S. person unless the withholding agent can apply the presumption rules of § 1.6049– 4(c)(1)(ii)(B), (C), (D), (E), (I), (J), (K), (L), or (N), to presume that the person is other than a specified U.S. person, or the person’s name reasonably indicates that the person is a bank (for example because it contains the word Bank or a foreign equivalent). (4) Presumption of chapter 4 status for a foreign entity. If a withholding agent cannot reliably associate a valid withholding certificate or valid documentary evidence sufficient to determine the chapter 4 status of the entity receiving payment under paragraph (d) of this section (for example, as a participating FFI, nonparticipating FFI, or NFFE), it must presume that the entity is a nonparticipating FFI. (5) Presumption of chapter 4 status of payee with respect to a payment to an intermediary or flow-through entity. If a withholding agent makes a payment to a foreign flow-through entity or intermediary, including a payment that it is required to treat as made to such an entity under paragraphs (f)(2) and (3) of this section, and cannot reliably associate such payment with valid documentation under paragraph (c) of this section, the withholding agent must presume that the payment is made to a nonparticipating FFI. (6) Presumption of effectively connected income for payments to certain U.S. branches. A withholding agent that makes a payment to a U.S. branch described in this paragraph (f)(6) may presume, in the absence of documentation indicating otherwise, that the U.S. branch is the payee of a payment that is effectively connected with the conduct of a trade or business in the United States if the withholding agent has obtained an EIN from the U.S. branch (either orally or in writing). A U.S. branch is described in this paragraph (f)(6) if it is a U.S. branch of a foreign bank subject to regulatory supervision by the Federal Reserve Board or a U.S. branch of a foreign insurance company required to file an annual statement on a form approved by the National Association of Insurance Commissioners with the Insurance VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 Department of a State, a Territory, or the District of Columbia. A payment is treated as made to a U.S. branch of a foreign bank or foreign insurance company if the payment is credited to an account maintained in the United States in the name of a U.S. branch of the foreign person, or the payment is made to an address in the United States where the U.S. branch is located and the name of the U.S. branch appears on documents (in written or electronic form) associated with the payment (for example, the check mailed or letter addressed to the branch). (7) Joint payees—(i) In general. If a withholding agent makes a payment to joint payees and cannot reliably associate the payment with valid documentation from each payee but all of the joint payees appear to be individuals, then the payment is presumed made to an unidentified U.S. person. If any joint payee does not appear, by its name and other information contained in the account file, to be an individual, then the entire payment will be treated as made to a nonparticipating FFI. However, if one of the joint payees provides a Form W–9 in accordance with the procedures described in §§ 31.3406(d)–1 through 31.3406(d)–5, the payment shall be treated as made to that payee. (ii) Exception for offshore obligations. If a withholding agent makes a payment outside the United States with respect to an offshore obligation held by joint payees and cannot reliably associate a payment with valid documentation from each payee but all of the joint payees appear to be individuals, then the payment is presumed made to an unknown foreign individual if the payment with respect to the offshore obligation is made outside the United States (as described in § 1.6049–5(e)). (8) Rebuttal of presumptions. A payee may rebut the presumptions described in paragraphs (f)(2) through (7) of this section by providing reliable documentation to the withholding agent or, if applicable, to the IRS. (9) Effect of reliance on presumptions and of actual knowledge or reason to know otherwise—(i) In general. Except as otherwise provided in this paragraph (f)(9), a withholding agent that withholds on a payment under section 1471 or 1472 in accordance with the presumptions set forth in this paragraph (f) shall not be liable for withholding under this section even if it is later established that the payee has a chapter 4 status other than the status presumed. A withholding agent that fails to report and withhold in accordance with the presumptions described in paragraphs (f)(2) through (7) of this section with PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 12843 respect to a payment that it cannot reliably associate with valid documentation shall be liable for tax, interest, and penalties. See § 1.1474–1(a) for the extent of a withholding agent’s liability for failing to withhold in accordance with the presumptions described in this paragraph (f). (ii) Actual knowledge or reason to know that amount of withholding is greater than is required under the presumptions or that reporting of the payment is required. Notwithstanding the provisions of paragraph (f)(9)(i) of this section, a withholding agent that knows or has reason to know that the status or characteristics of the person are other than what is presumed under this paragraph (f) may not rely on the presumptions described in this paragraph (f) to the extent that, if it determined the status of the person based on such knowledge or reason to know, it would be required to withhold (under this section or another withholding provision of the Code) an amount greater than would be the case if it relied on the presumptions described in this paragraph (f). In such a case, the withholding agent must rely on its knowledge or reason to know rather than on the presumptions set forth in this paragraph (f). Failure to do so shall result in liability for tax, interest, and penalties to the extent described in § 1.1474–1(a). (g) [Reserved]. For further guidance, see § 1.1471–3(g). (h) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 8. Section 1.1471–4 is amended: ■ 1. By removing paragraph (d)(3)(v). ■ 2. By redesignating paragraphs (d)(3)(vi) through (viii) as paragraphs (d)(3)(v) through (vii). ■ 3. By adding paragraphs (d)(2)(iii)(C), (d)(2)(ii)(F), and (d)(6)(vii). ■ 4. By revising paragraphs (a)(3), (b)(1) through (3), (b)(6), (c)(5)(iv)(B)(2)(vi), (c)(5)(iv)(E), (d)(1), (d)(2)(i), (d)(2)(ii)(A), (d)(2)(ii)(B)(2), (d)(2)(ii)(E), (d)(2)(iii)(A), (d)(2)(iii)(B) introductory text, (d)(3) (ii)(E), (d)(3)(iii)(F), (d)(5)(v) through (vi), (d)(7)(i), (d)(7)(ii)(A), (d)(7)(iii), (d)(7)(iv)(A) through (B), (d)(8), (d)(9) Example 3, Example 5, and Example 7, (e)(1), (e)(2)(ii), (f)(4)(i) through (ii), (g)(1) introductory text, (g)(1)(ii), and (g)(2). ■ 5. By removing the heading of paragraph (d)(7) and adding introductory text to paragraph (d)(7). The additions and revisions read as follows: § 1.1471–4 FFI agreement. (a) * * * E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12844 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (3) [Reserved]. For further guidance, see § 1.1471–4T(a)(3). * * * * * (b) * * * (1) [Reserved]. For further guidance, see § 1.1471–4T(b)(1). (2) [Reserved]. For further guidance, see § 1.1471–4T(b)(2). (3) [Reserved]. For further guidance, see § 1.1471–4T(b)(3). (i) [Reserved]. For further guidance, see § 1.1471–4T(b)(3)(i). (ii) [Reserved]. For further guidance, see § 1.1471–4T(b)(3)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–4T(b)(3)(iii). * * * * * (6) [Reserved]. For further guidance, see § 1.1471–4T(b)(6). * * * * * (c) * * * (5) * * * (iv) * * * (B) * * * (2) * * * (vi) [Reserved]. For further guidance, see § 1.1471–4T(c)(5)(iv)(B)(2)(vi). * * * * * (E) [Reserved]. For further guidance, see § 1.1471–4T(c)(5)(iv)(E). * * * * * (d) * * * (1) [Reserved]. For further guidance, see § 1.1471–4T(d)(1). (2) * * * (i) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(i). (ii) * * * (A) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(ii)(A). (B) * * * (2) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(ii)(B)(2). * * * * * (E) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(ii)(E). (F) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(ii)(F). (iii) * * * (A) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(iii)(A). (B) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(iii)(B). * * * * * (C) [Reserved]. For further guidance, see § 1.1471–4T(d)(2)(iii)(C). (3) * * * (ii) * * * (E) [Reserved]. For further guidance, see § 1.1471–4T(d)(3)(ii)(E). (iii) * * * (F) [Reserved]. For further guidance, see § 1.1471–4T(d)(3)(iii)(F). * * * * * (5) * * * (v) [Reserved]. For further guidance, see § 1.1471–4T(d)(5)(v). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (vi) [Reserved]. For further guidance, see § 1.1471–4T(d)(5)(vi). * * * * * (6) * * * (vii) [Reserved]. For further guidance, see § 1.1471–4T(d)(6)(vi). * * * * * (7) [Reserved]. For further guidance, see § 1.1471–4T(d)(7). (i) [Reserved]. For further guidance, see § 1.1471–4T(d)(7)(i). (ii) * * * (A) [Reserved]. For further guidance, see § 1.1471–4T(d)(7)(ii)(A). * * * * * (iii) [Reserved]. For further guidance, see § 1.1471–4T(d)(7)(iii). (iv) * * * (A) [Reserved]. For further guidance, see § 1.1471–4T(d)(7)(iv)(A). (B) [Reserved]. For further guidance, see § 1.1471–4T(d)(7)(iv)(B). (8) [Reserved]. For further guidance, see § 1.1471–4T(d)(8). (9) * * * Example 3. [Reserved]. For further guidance, see § 1.1471–4T(d)(9), Example 3. * * * * * Example 5. [Reserved]. For further guidance, see § 1.1471–4T(d)(9), Example 5. * * * * * Example 7. [Reserved]. For further guidance, see § 1.1471–4T(d)(9), Example 7. (e) * * * (1) [Reserved]. For further guidance, see § 1.1471–4T(e)(1). (2) * * * (ii) [Reserved]. For further guidance, see § 1.1471–4T(e)(2)(ii). * * * * * (f) * * * (4) * * * (i) [Reserved]. For further guidance, see § 1.1471–4T(f)(4)(i). (ii) [Reserved]. For further guidance, see § 1.1471–4T(f)(4)(ii). (g) * * * (1) [Reserved]. For further guidance, see § 1.1471–4T(g)(1). * * * * * (ii) [Reserved]. For further guidance, see § 1.1471–4T(g)(1)(ii). * * * * * (2) [Reserved]. For further guidance, see § 1.1471–4T(g)(2). * * * * * ■ Par. 9. Section 1.1471–4T is added to read as follows: § 1.1471–4T FFI Agreement (temporary). (a) [Reserved]. For further guidance, see § 1.1471–4(a). (1) through (2) [Reserved]. For further guidance, see § 1.1471–4(a)(1) through (2). PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 (3) Reporting. A participating FFI is required to report the information described in paragraph (d) of this section annually with respect to U.S. accounts under section 1471(c) and accounts held by recalcitrant account holders. A participating FFI must also comply with the filing requirements described in § 1.1474–1(c) and (d) to report payments that are chapter 4 reportable amounts paid to recalcitrant account holders and nonparticipating FFIs (including the transitional reporting of foreign reportable amounts paid to nonparticipating FFIs for calendar years 2015 and 2016 described in § 1.1471–4(d)(2)(ii)(F)). A participating FFI that is unable to obtain a waiver, if required by foreign law, to report an account as required under paragraph (d) of this section must close or transfer such account within a reasonable period of time as described in paragraph (i) of this section. (4) through (7) [Reserved]. For further guidance, see § 1.1471–4(a)(4) through (7). (b) [Reserved]. For further guidance, see § 1.1471–4(b). (1) In general. Except as otherwise provided in a Model 2 IGA, a participating FFI is required to deduct and withhold a tax equal to 30 percent of any withholdable payment made by such participating FFI to an account held by a recalcitrant account holder or to a nonparticipating FFI after June 30, 2014, to the extent required under paragraph (b)(3) of this section. See paragraph (b)(2) of this section for rules for a participating FFI to identify the payee of a payment in order to determine whether withholding is required under this paragraph (b). See paragraph (b)(4) of this section for the extent of a participating FFI’s requirement to deduct and withhold tax on a foreign passthru payment made by such participating FFI to an account held by a recalcitrant account holder or to a nonparticipating FFI. See paragraph (b)(5) of this section for the rules for withholding on payments to limited branches and limited FFIs. See paragraph (b)(6) for the special allowance to set aside in escrow amounts withheld with respect to dormant accounts. See paragraph (b)(7) of this section for the withholding requirements of certain U.S. branches of participating FFIs. See § 1.1471–2 for the exceptions to and special rules for withholding and the exclusion from the definitions of the terms withholdable payment and foreign passthru payment that applies to any payment made under a grandfathered obligation or the gross proceeds from the disposition of such an obligation. See § 1.1474–1(d)(4)(iii) E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations for the requirement of participating FFIs to report payments that are chapter 4 reportable amounts. See § 1.1474–6 for the coordination of withholding on payments under this paragraph (b) with the other withholding provisions under the Code. (2) Withholding determination. Except as otherwise provided under § 1.1471–2 and, with respect to certain preexisting accounts, under paragraph (c) of this section, a participating FFI is required to determine whether withholding applies at the time a payment is made by reliably associating the payment with valid documentation described in paragraph (c) of this section for the payee of the payment. For a payment made to an account, if the account is held by one or more individuals, the payee is each individual account holder. For a payment made to an account held by an entity, except as otherwise provided in § 1.1471–3(a)(3), the payee is the account holder. If the participating FFI makes a withholdable payment to a payee that is an entity and the payment is made with respect to an obligation that is not an account, except as otherwise provided in § 1.1471– 3(a)(3), the payee is the person to whom the payment is made. See § 1.1473–1(a) to determine when a payment is made in the case of a withholdable payment. If a participating FFI cannot reliably associate a payment (or any portion of a payment) with valid documentation, the rules described in paragraph (c) of this section shall apply to determine the chapter 4 status of the account holder (and payee if other than the account holder). Notwithstanding the foregoing, a participating FFI may establish after the date of payment that withholding was not required to the extent permitted under § 1.1471–3(c)(7) or may apply the procedures provided in § 1.1474–2 when overwithholding occurs. (3) Satisfaction of withholding requirements. (i) In general. A participating FFI that complies with the withholding obligations of this paragraph (b) with respect to accounts held by recalcitrant account holders and payees that are nonparticipating FFIs shall be deemed to satisfy its withholding obligations under sections 1471(a) and 1472 with respect to such account holders and payees. (ii) Withholding not required. A participating FFI that is an NQI, NWP, NWT, or that is a QI that elects under section 1471(b)(3) not to assume withholding responsibility for a payment and that provides its withholding agent with the information necessary to allocate all or a portion of the payment to each payee as part of a VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 withholding certificate described in § 1.1471–3(c)(3)(iii) will generally not be required to withhold under paragraph (b)(1) of this section. See § 1.1471– 2(a)(2)(ii), however, for the circumstances under which a participating FFI that is an NQI, NWP, or NWT has a residual withholding responsibility. See also § 1.1471– 3(c)(9)(iii)(B) for the circumstances under which a participating FFI that is a broker has a residual withholding responsibility as an intermediary of the payment and may also be liable for any underwithholding that occurs. See §§ 1.1471–2(a) and 1.1472–1(a)(2)(i) and the QI, WP, or WT agreement for the withholding requirements of a participating FFI that is a QI, WP, or WT for purposes of chapter 4. (iii) Election to withhold under section 3406. A participating FFI may elect to satisfy its withholding obligation under paragraph (b)(1) of this section with respect to recalcitrant account holders that are also U.S. nonexempt recipients subject to backup withholding under section 3406 receiving withholdable payments, to the extent that the payments also constitute reportable payments, by applying withholding under section 3406 at the backup withholding rate to such withholdable payments. A participating FFI may make the election described in this paragraph only if it complies with the information reporting rules under chapter 61 and section 3406. Nothing in this paragraph relieves a participating FFI of its requirement to backup withhold under section 3406 with respect to reportable payments that are not also withholdable payments. See § 1.1474–6(f) for the general rule that satisfying withholding requirements under chapter 4 will satisfy backup withholding requirements under section 3406 for a payment that is both a withholdable payment and a reportable payment. (4) through (5)(ii) [Reserved]. For further guidance, see § 1.1471–4(b)(4) through (b)(5)(ii). (6) Special rule for dormant accounts. A participating FFI that makes a withholdable payment not otherwise subject to withholding under chapter 3 or backup withholding under section 3406 to a recalcitrant account holder of a dormant account that it maintains must withhold on the account for purposes of chapter 4. However, the participating FFI may, in lieu of depositing the tax withheld, set aside the amount withheld in escrow until the date that the account ceases to be a dormant account. In such case, the tax withheld becomes due 90 days following the date that the account PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 12845 ceases to be a dormant account if the account holder does not provide the documentation required under paragraph (c) of this section or becomes refundable to the account holder if the account holder provides the documentation required under paragraph (c) of this section establishing that withholding does not apply. A participating FFI that maintains a dormant account of a recalcitrant account holder and that elects to escrow withheld tax pursuant to this paragraph (b)(6) may not delegate the responsibility to escrow withheld tax to the withholding agent from which it is receiving payment. Once a dormant account escheats irrevocably to a foreign government under the relevant laws in the jurisdiction in which the participating FFI (or branch thereof) operates, the participating FFI is no longer required to deposit with the IRS the amount held in escrow with respect to the account. See paragraph (d)(6)(ii) of this section for the definition of dormant account. (7) [Reserved]. For further guidance, see § 1.1471–4(b)(7). (c) [Reserved]. For further guidance, see § 1.1471–4(c). (1) through (4)(iii)(B) [Reserved]. For further guidance, see § 1.1471–4(c)(1) through (c)(4)(iii)(B). (5) [Reserved]. For further guidance, see § 1.1471–4(c)(5). (i) through (iii)(C) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(i) through (c)(5)(iii)(C). (iv) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(iv). (A) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(iv)(A). (B) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(iv)(B). (1) through (1)(vii) [Reserved]. For further guidance, see § 1.1471– 4(c)(5)(iv)(B)(1) through (c)(5)(iv)(B)(1)(vii). (2) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(iv)(B)(2). (i) through (v) [Reserved]. For further guidance, see § 1.1471– 4(c)(5)(iv)(B)(2)(i) through (v). (vi) Standing instructions to pay amounts. If information required to be reviewed with respect to the account contains standing instructions to pay amounts from the account to an account maintained in the United States for an account holder, the participating FFI must retain a record of a withholding certificate and either a form of documentary evidence described in § 1.1471–3(c)(5)(i)(A) through (C) or a written reasonable explanation (as defined in § 1.1441–7(b)(12)) establishing the account holder’s status as a foreign person. E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12846 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (vii) [Reserved]. For further guidance, see § 1.1471–4(c)(5)(iv)(B)(2)(vii). (C) through (D)(4)(vi) [Reserved]. For further guidance, see § 1.1471– 4(c)(5)(iv)(C) through (c)(5)(iv)(D)(4)(vi). (E) Exception for preexisting individual accounts previously documented as held by foreign individuals. A participating FFI that has previously obtained documentation from an account holder to establish the account holder’s status as a foreign individual in order to meet its obligations under its QI, WP, or WT agreement with the IRS, or to fulfill its reporting obligations as a U.S. payor under chapter 61, is not required to perform the electronic search described in paragraph (c)(5)(iv)(C) of this section or the enhanced review described in paragraph (c)(5)(iv)(D)(3) of this section for such account. Additionally, a participating FFI with a U.S. payor as its paying agent is not required to perform the electronic search described in paragraph (c)(5)(iv)(C) of this section or the enhanced review described in paragraph (c)(5)(iv)(D)(3) of this section for an account for which its paying agent that is a U.S. payor has previously obtained documentation to establish the account holder’s status as a foreign individual under chapter 61. The participating FFI is required, however, to perform the relationship manager inquiry described in paragraph (c)(5)(iv)(D)(2) of this section if the account is a high-value account described in paragraph (c)(5)(iv)(D)(1) of this section. For purposes of this paragraph (c)(5)(iv)(E), a participating FFI has documented an account holder’s foreign status under chapter 61 if the participating FFI (or its paying agent that is a U.S. payor) has retained a record of the documentation required under chapter 61 to establish the foreign status of an individual and the account received a reportable payment as defined under section 3406(b) in any prior year that was properly reported in that year. In the case of a participating FFI that is a QI, WP, or WT, the participating FFI has documented an account holder’s foreign status under its QI, WP, or WT agreement (as applicable) if the participating FFI has met the relevant documentation and reporting requirements of its agreement with respect to an account holder that received a reportable amount in any year in which its agreement was in effect. (6) through (7) [Reserved]. For further guidance, see § 1.1471–4(c)(6) through (7). (d) [Reserved]. For further guidance, see § 1.1471–4(d). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (1) Scope of paragraph. This paragraph (d) provides rules addressing the information reporting requirements applicable to participating FFIs with respect to U.S. accounts, accounts held by owner-documented FFIs, and recalcitrant account holders. Paragraph (d)(2) of this section describes the accounts subject to reporting under this paragraph (d), and specifies the participating FFI that is responsible for reporting an account or account holder. Paragraph (d)(3) of this section describes the information required to be reported and the manner of reporting by a participating FFI under section 1471(c)(1) with respect to a U.S. account or an account held by an ownerdocumented FFI. Paragraph (d)(4) of this section provides definitions of terms applicable to paragraph (d)(3). Paragraph (d)(5) of this section describes the conditions for a participating FFI to elect to report its U.S. accounts and accounts held by owner-documented FFIs under section 1471(c)(2) and the information required to be reported under such election. Paragraph (d)(6) of this section provides rules for a participating FFI to report its recalcitrant account holders. Paragraph (d)(7) of this section provides special transitional reporting rules applicable to reports due in 2015 and 2016. Paragraph (d)(8) of this section provides the reporting requirements of a participating FFI that is a QI, WP, or WT with respect to U.S. accounts. See chapter 61 for reporting requirements that may apply to a payor that is a participating FFI or registered deemed-compliant FFI with respect to payees. See § 301.1474–1(a) for the requirement for a financial institution to file the information required under this paragraph (d) on magnetic media. (2) [Reserved]. For further guidance, see § 1.1471–4(d)(2). (i) Accounts subject to reporting. Subject to the rules of paragraph (d)(7) of this section, a participating FFI shall report by the time and in the manner prescribed in paragraph (d)(3)(vi) of this section, the information described in paragraph (d)(3) of this section with respect to accounts maintained at any time during each calendar year for which the participating FFI is responsible for reporting under paragraph (d)(2)(ii) of this section and that it is required to treat as U.S. accounts or accounts held by ownerdocumented FFIs, including accounts that are identified as U.S. accounts by the end of such calendar year pursuant to a change in circumstances during such year as described in paragraph (c)(2)(iii) of this section. Alternatively, a participating FFI may elect to report PO 00000 Frm 00036 Fmt 4701 Sfmt 4700 under paragraph (d)(5) of this section with respect to such accounts for each calendar year. With respect to accounts held by recalcitrant account holders, a participating FFI is required to report with respect to each calendar year under paragraph (d)(6) of this section and not under paragraph (d)(3) or (5) of this section. For separate reporting requirements of participating FFIs with respect to foreign reportable amounts and for transitional rules for participating FFIs to report certain foreign reportable amounts paid to accounts held by nonparticipating FFIs, see § 1.1471–4(d)(2)(ii)(F). (ii) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(ii). (A) In general. Except as otherwise provided in paragraphs (d)(2)(ii)(B) through (F) of this section, the participating FFI that maintains the account is responsible for reporting the account in accordance with the requirements of paragraph (d)(2)(iii), (d)(3), or (d)(5) of this section (as applicable) for each calendar year. Except as otherwise provided in paragraph (d)(2)(ii)(C) of this section, a participating FFI is responsible for reporting accounts held by recalcitrant account holders that it maintains in accordance with the requirements of paragraph (d)(6) of this section. A participating FFI is not required to report the information required under paragraph (d)(6) of this section with respect to an account held by a recalcitrant account holder of another participating FFI even if that other participating FFI holds the account as an intermediary on behalf of such account holder and regardless of whether the participating FFI is required to report payments made to the recalcitrant account holder of such other FFI under § 1.1474–1(d)(4)(iii). (B) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(ii)(B). (1) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(ii)(B)(1). (2) If the territory financial institution does not agree to be treated as a U.S. person with respect to a withholdable payment, the participating FFI must report with respect to each specified U.S. person or substantial U.S. owner of an entity that is treated as a passive NFFE with respect to which the territory financial institution acts as an intermediary and provides the participating FFI with the information and documentation required under § 1.1471–3(c)(3)(iii)(G). The participating FFI shall be treated as having satisfied these reporting requirements if it reports with respect to each such specified U.S. person or E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations substantial U.S. owner of a passive NFFE either— (i) The information required by chapter 61 and described in paragraph (d)(5)(ii) or (d)(5)(iii) of this section (except account number); or (ii) The information described in paragraph (d)(3)(ii), (d)(3)(iii), or (d)(3)(iv) of this section (except account number and account balance or value). (C) through (D) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(ii)(C) through (D). (E) Requirement to identify the GIIN of a branch that maintains an account. A participating FFI may report under paragraph (d)(3) or (d)(5) of this section either with respect to all of its U.S. accounts and recalcitrant accounts, or separately with respect to any clearly identified group of accounts (such as by line of business or the location of where the account is maintained). A participating FFI shall include the GIIN assigned to the participating FFI or its branches to identify the jurisdiction of the FFI or branch that maintains the accounts subject to reporting under paragraph (d)(3) or (d)(5) of this section. Additionally, a participating FFI shall file with the IRS the information required to be reported on accounts that it maintains in accordance with the forms and their accompanying instructions provided by the IRS. For the definition of a branch that applies for purposes of this paragraph (d), see paragraph (e)(2)(ii) of this section. (F) Reporting by participating FFIs and registered deemed-compliant FFIs (including QIs, WPs, WTs, and certain U.S. branches not treated as U.S. persons) for accounts of nonparticipating FFIs (transitional). Except as otherwise provided in the instructions to Form 8966, ‘‘FATCA Report,’’ if a participating FFI or registered deemed-compliant FFI (including a QI, WP, WT, or U.S. branch of a participating FFI or registered deemed-compliant FFI that is not treated as a U.S. person) maintains an account for a nonparticipating FFI (including a limited branch and limited FFI treated as a nonparticipating FFI), the participating FFI or registered deemed-compliant FFI must report on Form 8966 the name and address of the nonparticipating FFI, and the aggregate amount of foreign source payments, as described in paragraph (d)(4)(iv) of this section, paid to or with respect to each such account (foreign reportable amount) for each of the calendar years 2015 and 2016. If, however, the participating FFI is prohibited under domestic law from reporting on a specific payee basis without consent from the nonparticipating FFI account VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 holder and the participating FFI has not been able to obtain such consent, the participating FFI may instead report the aggregate number of accounts held by such non-consenting nonparticipating FFIs and the aggregate amount of foreign reportable amounts paid with respect to such accounts, as described in paragraph (d)(4)(iv) of this section, during the calendar year. A participating FFI may, in lieu of reporting only foreign reportable amounts, report all income, gross proceeds, and redemptions (irrespective of the source) paid to the nonparticipating FFI’s account by the participating FFI during the calendar year. In addition, the participating FFI must retain the account statements related to such nonparticipating FFI accounts. See paragraphs (d)(6)(iv), (v), (vi) and (vii) of this section for rules relating to reporting on recalcitrant account holders. Form 8966 shall be filed electronically with the IRS on or before March 31 of the year following the end of the calendar year to which the form relates. (iii) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(iii). (A) Special reporting rule for U.S. payors other than U.S. branches. Participating FFIs that are U.S. payors (other than U.S. branches) shall be treated as having satisfied the chapter 4 reporting requirements described in paragraph (d)(2)(i) of this section with respect to accounts that the participating FFI is required to treat as U.S. accounts, or accounts held by owner-documented FFIs, if the participating FFI reports with respect to each such account either— (1) The information required by chapter 61 and described in paragraph (d)(5)(ii) or (d)(5)(iii) of this section; or (2) The information described in paragraph (d)(3)(ii), (d)(3)(iii), or (d)(3)(iv) of this section. However, such participating FFI that is required to report on such accounts under chapter 61 is not relieved of that obligation. (B) Special reporting rules for U.S. branches treated as U.S. persons. A U.S. branch of a participating FFI (and reporting Model 1 FFI) that is treated as a U.S. person shall be treated as having satisfied the reporting requirements described in paragraph (d)(2)(i) of this section if it reports under— (1) through (4) [Reserved]. For further guidance, see § 1.1471–4(d)(2)(iii)(B)(1) through (4). (C) Special reporting rules for U.S. branches not treated as U.S. persons. A U.S. branch of a registered deemedcompliant FFI or limited FFI that is not treated as a U.S. person shall be treated as having satisfied the reporting PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 12847 requirements described in paragraph (d)(2)(i) of this section if it reports the information described in paragraph (d)(2)(iii)(B)(1) through (4) of this section with respect to account holders of accounts that the U.S. branch is required to treat as U.S. accounts or accounts held by owner-documented FFIs. (3) [Reserved]. For further guidance, see § 1.1471–4(d)(3). (i) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(i). (ii) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(ii). (A) through (D) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(ii)(A) through (D). (E) Such other information as is otherwise required to be reported under this paragraph (d)(3) or in the form described in paragraph (d)(3)(v) of this section and its accompanying instructions. (iii) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(iii). (A) through (E) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(iii)(A) through (E). (F) Such other information as is otherwise required to be reported under this paragraph (d)(3) or in the form described in paragraph (d)(3)(v) of this section and its accompanying instructions. (iv) through (iv)(F) [Reserved]. For further guidance, see § 1.1471– 4(d)(3)(iv) through (d)(3)(iv)(F). (v) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(v). (vi) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(vi). (vii) [Reserved]. For further guidance, see § 1.1471–4(d)(3)(vii). (4) through (4)(v) [Reserved]. For further guidance, see § 1.1471–4(d)(4) through (d)(4)(v). (5) [Reserved]. For further guidance, see § 1.1471–4(d)(5). (i) through (iv) [Reserved]. For further guidance, see § 1.1471–4(d)(5)(i) through (d)(5)(iv). (v) Time and manner of making the election. A participating FFI (or one or more branches of the participating FFI) may make the election described in this paragraph (d)(5) by reporting the information described in this paragraph (d)(5) on the form described in paragraph (d)(5)(vii) of this section on the next reporting date following the end of the calendar year for which the election is made. A participating FFI may make an election under this paragraph (d)(5) either with respect to all of its U.S. accounts and recalcitrant accounts or, separately, with respect to any clearly identified group of accounts (such as by line of business or the E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12848 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations location where the account is maintained). (vi) Revocation of election. A participating FFI may revoke the election described in paragraph (d)(5)(i) of this section (as a whole or with regard to any clearly identified group of accounts) by reporting the information described in paragraph (d)(3) of this section beginning on the first reporting date with respect to the calendar year that follows the calendar year for which it last reports an account under this paragraph (d)(5). (vii) [Reserved]. For further guidance, see § 1.1471–4(d)(5)(vii). (6) [Reserved]. For further guidance, see § 1.1471–4(d)(6). (i) through (v) [Reserved]. For further guidance, see § 1.1471–4(d)(6)(i) through (v). (vi) Extensions in filing. The IRS shall grant an automatic 90-day extension of time in which to file Form 8966. Form 8809, ‘‘Request for Extension of Time to File Information Returns,’’ (or such other form as the IRS may prescribe) must be used to request such extension of time and must be filed no later than the due date of Form 8966. Under certain hardship conditions, the IRS may grant an additional 90-day extension. A request for extension due to hardship must contain a statement of the reasons for requesting the extension and such other information as the forms or instructions may require. (vii) [Reserved]. For further guidance, see § 1.1471–4(d)(6)(vii). (7) Special reporting rules with respect to the 2014 and 2015 calendar years (i) In general. If the effective date of the FFI agreement of a participating FFI is on or before December 31, 2015, the participating FFI is required to report U.S. accounts and accounts held by owner-documented FFIs that it maintained (or that it is otherwise required to report under paragraph (d)(2)(ii) of this section) during the 2014 and 2015 calendar years in accordance with paragraph (d)(7)(ii) or (iii) of this section. (ii) [Reserved]. For further guidance, see § 1.1471–4(d)(7)(ii). (A) Reporting with respect to the 2014 calendar year. With respect to accounts maintained during the 2014 calendar year— (1) through (3) [Reserved]. For further guidance, see § 1.1471–4(d)(7)(ii)(A)(1) through (3). (B) [Reserved]. For further guidance, see § 1.1471–4(d)(7)(ii)(B). (1) through (2) [Reserved]. For further guidance, see § 1.1471–4(d)(7)(ii)(B)(1) through (2). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (iii) Participating FFIs that report under § 1.1471–4(d)(5). A participating FFI that elects to report under paragraph (d)(5) of this section may report only the information described in paragraphs (d)(7)(ii)(A)(1) and (3) of this section for its 2014 calendar year. With respect to its 2015 calendar year, a participating FFI is required to report all of the information required to be reported under paragraphs (d)(5)(i) through (iii) of this section but may exclude from such reporting amounts reportable under section 6045. (iv) [Reserved]. For further guidance, see § 1.1471–4(d)(7)(iv). (A) In general. Except as provided in paragraph (d)(7)(iv)(B) of this section, reporting under paragraph (d)(7)(ii) of this section shall be made on Form 8966 (or such other form as the IRS may prescribe), in the manner described in paragraph (d)(3)(vi) of this section. Reporting under paragraph (d)(7)(iii) of this section shall be made in accordance with paragraph (d)(5)(vii) of this section. (B) Special determination date and timing for reporting with respect to the 2014 calendar year. With respect to the 2014 calendar year, a participating FFI must report under paragraph (d)(3) or (5) of this section on all accounts that are identified and documented under paragraph (c) of this section as U.S. accounts or accounts held by ownerdocumented FFIs as of December 31, 2014, (or as of the date an account is closed if the account is closed prior to December 31, 2014) if such account was outstanding on July 1, 2014. Reporting for the 2014 calendar year shall be filed with the IRS on or before March 31, 2015. However, a U.S. payor (including a U.S. branch of a participating FFI or registered deemed-compliant FFI that is treated as a U.S. person) that reports in accordance with paragraph (d)(2)(iii) of this section may report all or a portion of its U.S. accounts and accounts held by owner-documented FFIs in accordance with the dates otherwise applicable to reporting under chapter 61 with respect to the 2014 calendar year. (8) Reporting requirements of QIs, WPs, and WTs. In general, the reporting requirements with respect to the U.S. accounts maintained by a participating FFI that is a QI, WP, or WT will be consistent with the reporting requirements with respect to such accounts of a participating FFI that is not a QI, WP, or WT. See the QI, WP, or WT agreement for the coordination of the chapter 4 reporting obligations of a participating FFI that also is a QI, WP, or WT. (9) [Reserved]. For further guidance, see § 1.1471–4(d)(9). PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 Example 1. [Reserved]. For further guidance, see § 1.1471–4(d)(9), Example 1. Example 2. [Reserved]. For further guidance, see § 1.1471–4(d)(9), Example 2. Example 3. U.S. owned foreign entity. FC, a passive NFFE, holds a custodial account with PFFI1, a participating FFI. U, a specified U.S. person, owns 3% of the only class of stock of FC. Q, another specified U.S. person, owns 12% of the only class of stock of FC. U is not a substantial U.S. owner of FC. See § 1.1473–1(b). Q is a substantial U.S. owner of FC and FC identifies her as such to PFFI1. PFFI1 does not elect to report under paragraph (d)(5) of this section. PFFI1 must complete and file the reporting form described in paragraph (d)(3)(v) of this section and report the information described in paragraph (d)(3)(iii) with respect to both FC and Q. See paragraph (d)(3)(ii) of this section. Example 4. [Reserved]. For further guidance, see § 1.1471–4(d)(9), Example 4. Example 5. Owner-documented FFI. DC, an owner-documented FFI under § 1.1471– 3(d)(6), holds a custodial account with PFFI1, a participating FFI. U, a specified U.S. person, owns 3% of the only class of stock of DC. Q, another specified U.S. person, owns 12% of the only class of stock of DC. Both U and Q are persons identified in § 1.1471– 3(d)(6)(iv)(A)(1) and DC identifies U and Q to PFFI1 and otherwise provides to PFFI1 all of the information required to be reported with respect to DC. PFFI1 must complete and file a form described in paragraph (d)(3)(v) of this section with regard to U and Q. See paragraph (d)(3)(iii) of this section. Example 6. [Reserved]. For further guidance, see § 1.1471–4(d)(9), Example 6. Example 7. Sponsored FFI. DC2 is an FFI that has agreed to have a sponsoring entity, PFFI1, fulfill DC2’s chapter 4 responsibilities under § 1.1471–5(f)(2)(iii). U, a specified U.S. person, holds an equity interest in DC2 that is a financial account under § 1.1471– 5(b)(3)(iii). PFFI1 must complete and file a form described in paragraph (d)(3)(v) of this section with regard to U’s account on behalf of DC2. See paragraph (d)(2)(ii)(C) of this section. (e) [Reserved]. For further guidance, see § 1.1471–4(e). (1) In general. Except as otherwise provided in this paragraph (e)(1) or paragraphs (e)(2) and (e)(3) of this section, each FFI that is a member of an expanded affiliated group must have the chapter 4 status of a participating FFI, deemed-compliant FFI, or exempt beneficial owner as a condition for any member of such group to obtain the status of a participating FFI or registered deemed-compliant FFI. Accordingly, except as otherwise provided in published guidance, each FFI other than a certified deemed-compliant FFI or exempt beneficial owner in an expanded affiliated group must submit a registration form to the IRS in such manner as the IRS may prescribe requesting an FFI agreement, registered deemed-compliant status, or limited FFI E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations status as a condition for any member to become a participating FFI or registered deemed-compliant FFI. Except as provided in paragraph (e)(2) of this section, each FFI other than a certified deemed-compliant FFI or exempt beneficial owner that is a member of such group must also agree to all of the requirements for the status for which it applies with respect to all accounts maintained at all of its branches, offices, and divisions. For the withholding requirements of a participating FFI with respect to its limited branches and its affiliates that are limited FFIs, see paragraph (b)(5) of this section. Notwithstanding the foregoing, an FFI (or branch thereof) that is treated as a participating FFI or a deemed-compliant FFI pursuant to a Model 1 IGA or Model 2 IGA will maintain such status provided that it meets the terms for such status pursuant to such agreement. (2) [Reserved]. For further guidance, see § 1.1471–4(e)(2). (i) [Reserved]. For further guidance, see § 1.1471–4(e)(2)(i). (A) through (C) [Reserved]. For further guidance, see § 1.1471–4(e)(2)(i)(A) through (C). (ii) Branch defined. For purposes of this section, a branch is a unit, business, or office of an FFI that is treated as a branch under the regulatory regime of a country or that is otherwise regulated under the laws of a country as separate from other offices, units, or branches of the FFI and also includes an entity that is disregarded as an entity separate from an FFI (including branches maintained by such disregarded entity). For purposes of this section, a branch includes a unit, business, or office of an FFI located in a country in which it is resident, and a unit, business, or office of an FFI located in the country in which the FFI is created or organized. All units, businesses, and offices of a participating FFI located in a single country, and all entities disregarded as entities separate from a participating FFI and located in a single country, shall be treated as a single branch and may use the same GIIN. An account will be treated as maintained by a branch or disregarded entity if the rights and obligations of the account holder and the participating FFI with regard to such account (including any assets held in the account) are governed by the laws of the country of the branch or disregarded entity. (iii) through (v) [Reserved]. For further guidance, see § 1.1471– 4(e)(2)(iii) through (v). (3) through (4) [Reserved]. For further guidance, see § 1.1471–4(e)(3) through (4). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (f) [Reserved]. For further guidance, see § 1.1471–4(f). (1) through (3)(iv)(C) [Reserved]. For further guidance, see § 1.1471–4(f)(1) through (f)(3)(iv)(C). (4) [Reserved]. For further guidance, see § 1.1471–4(f)(4). (i) General inquiries. The IRS, based upon the information reporting forms described in paragraphs (d)(3)(v), (d)(5)(vii), or (d)(6)(iv) of this section filed with the IRS for each calendar year, may request additional information with respect to the information reported on the forms or may request the account statements described in paragraph (d)(4)(v) of this section. The IRS may request additional information to determine an FFI’s compliance with its FFI agreement and to assist the IRS with its review of account holder compliance with tax reporting requirements. (ii) Inquiries regarding substantial non-compliance. If, based on the information reporting forms described in paragraphs (d)(3)(v), (d)(5)(vii), or (d)(6)(iv) of this section filed with the IRS for each calendar year, the certifications made by the responsible officer described in paragraph (f)(3) of this section, or any other information related to the participating FFI’s compliance with its FFI agreement, the IRS determines in its discretion that the participating FFI may not have substantially complied with the requirements of its FFI agreement, the IRS may request from the responsible officer (or designee) information necessary to verify the participating FFI’s compliance with the FFI agreement. The IRS may request, for example, a description or copy of the participating FFI’s policies and procedures for fulfilling the requirements of the FFI agreement, a description of the participating FFI’s procedures for conducting its periodic review, or a copy of any written reports documenting the findings of such review in order to evaluate the sufficiency of the participating FFI’s compliance program and review of such program. The IRS may also request the performance of specified review procedures by a person (including an external auditor or third-party consultant) that the IRS identifies as competent to perform such procedures given the facts and circumstances surrounding the FFI’s potential failure to comply with the FFI agreement. The IRS may make these requests to a sponsoring entity with respect to any sponsored FFI. (g) [Reserved]. For further guidance, see § 1.1471–4(g). PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 12849 (1) Defined. An event of default occurs if a participating FFI fails to perform material obligations required with respect to the due diligence, verification, withholding, or reporting requirements of the FFI agreement or if the IRS determines that the participating FFI has failed to substantially comply with the requirements of the FFI agreement. An event of default also includes the occurrence of the following— (i) [Reserved]. For further guidance, see § 1.1471–4(g)(1)(i). (ii) Failure to significantly reduce, over a period of time, the number of account holders or payees that the participating FFI is required to treat as recalcitrant account holders or nonparticipating FFIs, as a result of the participating FFI failing to comply with the due diligence procedures for the identification and documentation of account holders and payees, as set forth in paragraph (c) of this section; (iii) through (ix) [Reserved]. For further guidance, see § 1.1471– 4(g)(1)(iii) through (ix). (2) Notice of event of default. Following an event of default known by or disclosed to the IRS, the IRS will deliver to the participating FFI a notice of default specifying the event of default. The IRS will request that the participating FFI remediate the event of default within a specified time period. The participating FFI must respond to the notice of default and provide information responsive to an IRS request for information or state the reasons why the participating FFI does not agree that an event of default has occurred. Taking into account the terms of any applicable Model 2 IGA, if the participating FFI does not provide a response within the specified time period, the IRS may, at its sole discretion, deliver a notice of termination that terminates the FFI’s participating FFI status. A participating FFI may request, within a reasonable period of time, reconsideration of a notice of default or notice of termination by written request to the Deputy Commissioner (International), LB&I. (3) [Reserved]. For further guidance, see § 1.1471–4(g)(3). (h) through (j) [Reserved]. For further guidance, see § 1.1471–4(h) through (j). (k) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 10. Section 1.1471–5 is amended: ■ 1. By removing paragraphs (a)(3)(ii) (b)(3)(v)(B)(3), and (b)(3)(vi)(B)(3). ■ 2. By redesignating paragraphs (a)(3)(iii) through (a)(3)(vi) as paragraphs (a)(3)(ii) through (a)(3)(v) and paragraph (j) as paragraph (l). E:\FR\FM\06MRR3.SGM 06MRR3 12850 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations 3. By adding paragraphs (f)(1)(i)(F)(3)(vii), (f)(2)(v), (j), and (k). ■ 4. By revising paragraphs (a)(3)(i), (a)(4)(i), (b)(1)(iii)(B)(2), (b)(3)(iv), (b)(3)(v)(A), (b)(3)(v)(B)(1) through (2), (b)(3)(vi), (c), (e)(1)(v)(A), (e)(3)(ii), (e)(4)(v) Example 7 through Example 8, (e)(5)(i)(A)(3), (e)(5)(i)(B) introductory text, (e)(5)(i)(B)(1), (e)(5)(i)(C), (e)(5)(i)(D)(1)(iv) through (v), (e)(5)(iv)(B), (f)(1)(i)(A)(6), (f)(1)(i)(B)(1), (f)(1)(i)(B)(3), (f)(1)(i)(C)(2), (f)(1)(i)(D)(4) through (6), (f)(1)(i)(D)(7) introductory text, (f)(1)(i)(E), (f)(1)(i)(F)(1)(ii), (f)(1)(i)(F)(3)(v) through (vi), (f)(1)(i)(F)(5), (f)(1)(ii)(B), (f)(2) introductory text, (f)(2)(i)(B), (f)(2)(iii) through (iv), (f)(4)(i), (g)(3)(i)(D), and (i). The additions and revisions read as follows: (v) * * * ■ tkelley on DSK3SPTVN1PROD with RULES3 § 1.1471–5 Definitions applicable to section 1471. (a) * * * (3) * * * (i) [Reserved]. For further guidance, see § 1.1471–5T(a)(3)(i). * * * * * (4) * * * (i) [Reserved]. For further guidance, see § 1.1471–5T(a)(4)(i). * * * * * (b) * * * (1) * * * (iii) * * * (B) * * * (2) [Reserved]. For further guidance, see § 1.1471–5T(b)(1)(iii)(B)(2). * * * * * (3) * * * (iv) [Reserved]. For further guidance, see § 1.1471–5T(b)(3)(iv). (v) * * * (A) [Reserved]. For further guidance, see § 1.1471–5T(b)(3)(v)(A). (B) * * * (1) [Reserved]. For further guidance, see § 1.1471–5T(b)(3)(v)(B)(1). (2) [Reserved]. For further guidance, see § 1.1471–5T(b)(3)(v)(B)(2). (vi) [Reserved]. For further guidance, see § 1.1471–5T(b)(3)(vi) through (b)(3)(vi)(B)(2). * * * * * (c) [Reserved]. For further guidance, see § 1.1471–5T(c). * * * * * (e) * * * (1) * * * (v) * * * (A) [Reserved]. For further guidance, see § 1.1471–5T(e)(1)(v)(A). * * * * * (3) * * * (ii) [Reserved]. For further guidance, see § 1.1471–5T(e)(3)(ii). * * * * * (4) * * * VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 Example 7. [Reserved]. For further guidance, see § 1.1471–5T(e)(4)(v), Example 7. Example 8. [Reserved]. For further guidance, see § 1.1471–5T(e)(4)(v), Example 8. * * * * * (5) * * * (i) * * * (A) * * * (3) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(A)(3). (B) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(B). (1) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(B)(1). * * * * * (C) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(C). (D) * * * (1) * * * (iv) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(D)(1)(iv). (v) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(i)(D)(1)(v). * * * * * (iv) * * * (B) [Reserved]. For further guidance, see § 1.1471–5T(e)(5)(iv)(B). * * * * * (f) * * * (1) * * * (i) * * * (A) * * * (6) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(A)(6). * * * * * (B) * * * (1) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(B)(1). * * * * * (3) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(B)(3). (C) * * * (2) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(C)(2). * * * * * (D) * * * (4) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(D)(4). (5) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(D)(5). (6) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(D)(6). (7) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(D)(7). * * * * * (E) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(E). through (f)(1)(i)(E)(2). (F) * * * (1) * * * (ii) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(F)(1)(ii). * * * * * (3) * * * PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 (v) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(F)(3)(v). (vi) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(F)(3)(vi). (vii) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(F)(3)(vii). * * * * * (5) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(i)(F)(5). (ii) * * * (B) [Reserved]. For further guidance, see § 1.1471–5T(f)(1)(ii)(B). * * * * * (2) [Reserved]. For further guidance, see § 1.1471–5T(f)(2). (i) * * * (B) [Reserved]. For further guidance, see § 1.1471–5T(f)(2)(i)(B). * * * * * (iii) [Reserved]. For further guidance, see § 1.1471–5T(f)(2)(iii) through (f)(2)(iii)(E). (iv) [Reserved]. For further guidance, see § 1.1471–5T(f)(2)(iv) through (f)(2)(iv)(E). (F) [Reserved]. For further guidance, see § 1.1471–5T(f)(2)(iv)(F). (v) [Reserved]. For further guidance, see § 1.1471–5T(f)(2)(v) through (f)(2)(v)(B). * * * * * (4) * * * (i) [Reserved]. For further guidance, see § 1.1471–5T(f)(4)(i). * * * * * (g) * * * (3) * * * (i) * * * (D) [Reserved]. For further guidance, see § 1.1471–5T(g)(3)(i)(D). * * * * * (i) [Reserved]. For further guidance, see § 1.1471–5T(i) through (i)(10). (j) [Reserved]. For further guidance, see § 1.1471–5T(j). (k) [Reserved]. For further guidance, see § 1.1471–5T(k). ■ Par. 11. Section 1.1471–5T is added to read as follows: § 1.1471–5T Definitions applicable to section 1471 (temporary). (a) [Reserved]. For further guidance, see § 1.1471–5(a). (1) through (2) [Reserved]. For further guidance, see § 1.1471–5(a)(1) through (2). (3) [Reserved]. For further guidance, see § 1.1471–5(a)(3). (i) In general. Except as otherwise provided in this paragraph (a)(3), the account holder is the person listed or identified as the holder or owner of the account with the FFI that maintains the account, regardless of whether such person is a flow-through entity. Thus, for example, except as otherwise provided in paragraph (a)(3)(ii) of this E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations section, if a trust (including a simple or grantor trust) or an estate is listed as the holder or owner of a financial account, the trust or estate is the account holder, rather than its owners or beneficiaries. Similarly, except as otherwise provided in this paragraph (a)(3), if a partnership is listed as the holder or owner of a financial account, the partnership is the account holder, rather than the partners in the partnership. In the case of an account held by an entity that is disregarded for U.S. federal tax purposes under § 301.7701–2(c)(2)(i), the account shall be treated as held by the person owning such entity. With respect to an account held by an exempt beneficial owner, such account is treated as held by an exempt beneficial owner only when all payments made to such account would be treated as made to an exempt beneficial owner. See § 1.1471–6(h) for when a payment derived from certain commercial activities is not treated as made to an exempt beneficial owner. (ii) [Reserved]. For further guidance, see § 1.1471–5(a)(3)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–5(a)(3)(iii). (iv) [Reserved]. For further guidance, see § 1.1471–5(a)(3)(iv). (v) [Reserved]. For further guidance, see § 1.1471–5(a)(3)(v). (4) [Reserved]. For further guidance, see § 1.1471–5(a)(4). (i) Exception for certain individual accounts of participating FFIs. Unless a participating FFI elects under paragraph (a)(4)(ii) of this section not to apply this paragraph (a)(4)(i), the term U.S. account shall not include any depository account maintained by such financial institution during a calendar year if the account is held solely by one or more individuals and, with respect to each holder of such account, the aggregate balance or value of all depository accounts held by each such individual does not exceed $50,000 as of the end of the calendar year or on the date the account is closed. For rules for determining the account balance or value, see paragraphs (a)(3)(iii) and (b)(4) of this section. (ii) [Reserved]. For further guidance, see § 1.1471–5(a)(4)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–5(a)(4)(iii). (b) [Reserved]. For further guidance, see § 1.1471–5(b). (1) [Reserved]. For further guidance, see § 1.1471–5(b)(1). (i) through (ii) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(i) through (ii). (iii) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (A) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii)(A). (B) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii)(B). (1) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii)(B)(1). (2) The return earned on the interest is determined, directly or indirectly, primarily by reference to one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or one or more passive NFFEs that are members of the entity’s expanded affiliated group (as determined under paragraph (b)(3)(vi) of this section); (3) through (4) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii)(B)(3) through (4). (C) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iii)(C) through (b)(1)(iii)(C)(2). (iv) [Reserved]. For further guidance, see § 1.1471–5(b)(1)(iv). (2) [Reserved]. For further guidance, see § 1.1471–5(b)(2) through (b)(2)(vi). (3) [Reserved]. For further guidance, see § 1.1471–5(b)(3). (i) through (iii) [Reserved]. For further guidance, see § 1.1471–5(b)(3)(i) through (b)(3)(iii)(B)(3). (iv) Regularly traded on an established securities market. To determine if debt or equity interests described in paragraph (b)(1)(iii) of this section are regularly traded, the principles of § 1.1472–1(c)(1)(i)(A)(2)(i) and (ii) shall apply with respect to the interests, and the principles of § 1.1472– 1(c)(1)(i)(B)(1) shall apply for this purpose in the case of an initial public offering of such interests. See § 1.1472– 1(c)(1)(i)(C) for the definition of an established securities market. For purposes of paragraph (b)(1)(iii) of this section, an interest is not regularly traded on an established securities market if the holder of the interest (excluding a financial institution acting as an intermediary) is registered on the books of the investment entity. The preceding sentence shall not apply to the extent a holder’s interest is registered prior to July 1, 2014, on the books of the investment entity. (v) [Reserved]. For further guidance, see § 1.1471–5(b)(3)(v). (A) Equity interest. The value of an equity interest is determined, directly or indirectly, primarily by reference to assets that give rise (or could give rise) to withholdable payments if the return earned on such interest (including upon a sale, exchange, or redemption) is determined primarily by reference to profits or assets of a U.S. person or equity interests in a U.S. person. (B) [Reserved]. For further guidance, see § 1.1471–5(b)(3)(v)(B). PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 12851 (1) Debt is convertible into equity interests in a U.S. person; or (2) The return earned on such interest (including upon a sale, exchange, or redemption) is determined primarily by reference to profits or assets of a U.S. person or equity interests in a U.S. person. (vi) Return earned on the interest (including upon a sale, exchange, or redemption) determined, directly or indirectly, primarily by reference to one or more investment entities or passive NFFEs. (A) Equity interest. The return earned on an equity interest is determined, directly or indirectly, primarily by reference to one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are members of the entity’s expanded affiliated group if the return on such interest (including upon a sale, exchange, or redemption) is determined primarily by reference to profits or assets of, or equity interests in, one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are members of the entity’s expanded affiliated group. (B) Debt interest. The return earned on a debt interest is determined, directly or indirectly, primarily by reference to one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are members of the entity’s expanded affiliated group if— (1) Debt is convertible into equity interests in one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are members of the entity’s expanded affiliated group; or (2) The return on such interest (including upon a sale, exchange, or redemption) is determined primarily by reference to profits or assets of, or equity interests in, one or more investment entities described in paragraph (e)(4)(i)(B) or (C) of this section or passive NFFEs that are members of the entity’s expanded affiliated group. (vii) [Reserved]. For further guidance, see § 1.1471–5(b)(3)(vii) through (b)(3)(vii)(D)(3). (4) through (5) [Reserved]. For further guidance, see § 1.1471–5(b)(4) through (5). (c) U.S. owned foreign entity. The term U.S. owned foreign entity means any foreign entity that has one or more substantial U.S. owners (as defined in § 1.1473–1(b)). See § 1.1473–1(e) for the definition of foreign entity for purposes of chapter 4. For the requirements applicable to determining direct and E:\FR\FM\06MRR3.SGM 06MRR3 12852 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations tkelley on DSK3SPTVN1PROD with RULES3 indirect ownership in an entity, see § 1.1473–1(b)(2). (d) [Reserved]. For further guidance, see § 1.1471–5(d). (e) [Reserved]. For further guidance, see § 1.1471–5(e). (1) [Reserved]. For further guidance, see § 1.1471–5(e)(1). (i) through (iv) [Reserved]. For further guidance, see § 1.1471–5(e)(1)(i) through (iv). (v) [Reserved]. For further guidance, see § 1.1471–5(e)(1)(v). (A) Is part of an expanded affiliated group that includes a depository institution, custodial institution, specified insurance company, or investment entity described in paragraphs (e)(4)(i)(B) or (C) of this section; or (B) [Reserved]. For further guidance, see § 1.1471–5(e)(1)(v)(B). (2) [Reserved]. For further guidance, see § 1.1471–5(e)(2) through (e)(2)(iv). (3) [Reserved]. For further guidance, see § 1.1471–5(e)(3). (i) [Reserved]. For further guidance, see § 1.1471–5(e)(3)(i) through (e)(3)(i)(B). (ii) Income attributable to holding financial assets and related financial services. For purposes of this paragraph (e)(3), the term income attributable to holding financial assets and related financial services means custody, account maintenance, and transfer fees; commissions and fees earned from executing and pricing securities transactions; income earned from extending credit to customers with respect to financial assets held in custody by the entity (or acquired through such extension of credit); income earned on the bid-ask spread of financial assets; fees for providing financial advice with respect to financial assets held in (or potentially to be held in) custody by the entity; and fees for clearance and settlement services. (iii) [Reserved]. For further guidance, see § 1.1471–5(e)(3)(iii). (4) [Reserved]. For further guidance, see § 1.1471–5(e)(4). (i) through (iv) [Reserved]. For further guidance, see § 1.1471–5(e)(4)(i) through (e)(4)(iv)(B). (v) [Reserved]. For further guidance, see § 1.1471–5(e)(4)(v). Example 1 through Example 6 [Reserved]. For further guidance, see § 1.1471–5(e)(4)(v), Example 1 through Example 6. Example 7. Individual introducing broker. IB, an individual introducing broker, primarily conducts a business of providing advice to clients, has discretionary authority to manage clients’ assets, and uses the services of a foreign entity to conduct and execute trades on behalf of clients. IB VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 provides services as an investment advisor and manager to Entity, a foreign corporation. Entity has earned 50% or more of its gross income for the past three years from investing, reinvesting, or trading in financial assets. Because IB is an individual, notwithstanding that IB primarily conducts certain investment-related activities, IB is not an investment entity under paragraph (e)(4)(i)(A) of this section. Further, Entity is not an investment entity under paragraph (e)(4)(i)(B) of this section because Entity is managed by IB, an individual. Example 8. Entity introducing broker. IB, a foreign entity introducing broker, primarily conducts a business of providing advice to clients, has discretionary authority to manage clients’ assets, and uses the services of a foreign entity to conduct and execute trades on behalf of clients. IB provides its services as an investment advisor and manager to Entity, a foreign corporation. Entity has earned 50% or more of its gross income for the past three years from investing, reinvesting, or trading in financial assets. Because IB is an entity that primarily conducts certain investment-related activities, IB is an investment entity under paragraph (e)(4)(i)(A) of this section. Further, Entity is an investment entity under paragraph (e)(4)(i)(B) of this section because it is managed by IB, an investment entity that performs certain of the activities described in paragraph (e)(4)(i)(A) of this section on behalf of Entity. (5) [Reserved]. For further guidance, see § 1.1471–5(e)(5). (i) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i). (A) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(A). (1) through (2) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(A)(1) through (2). (3) The entity does not hold itself out as (and was not formed in connection with or availed of by) an arrangement or investment vehicle that is a private equity fund, venture capital fund, leveraged buyout fund, or any similar investment vehicle established with an investment strategy to acquire or fund companies and to treat the interests in those companies as capital assets held for investment purposes. For purposes of determining whether an entity was formed in connection with or availed of by such an arrangement or investment vehicle, any entity that existed at least six months prior to its acquisition by such arrangement or investment vehicle and that, prior to the acquisition, regularly conducted activities in the ordinary course of business will not be considered to have been formed in connection with or availed of by the arrangement or investment vehicle, in the absence of other facts suggesting the existence of an investment strategy described in the prior sentence. (B) Nonfinancial group. An expanded affiliated group defined in § 1.1471– PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 5(i)(2) is a nonfinancial group if, taking into account the application of this section— (1) For the three-year period (or the period during which the expanded affiliated group has been in existence, if shorter) ending on December 31 of the year preceding the year in which the determination is made, no more than 25 percent of the gross income of the expanded affiliated group (excluding income derived by any member that is an entity described in paragraph (e)(5)(ii) or (iii) of this section and income derived from transactions between members of the expanded affiliated group) consists of passive income (as defined in § 1.1472– 1(c)(1)(iv)); no more than five percent of the gross income of the expanded affiliated group is derived by members of the expanded affiliated group that are FFIs (excluding income derived from transactions between members of the expanded affiliated group or by any member of the expanded affiliated group that is a certified deemedcompliant FFI); and no more than 25 percent of the value of assets held by the expanded affiliated group (excluding assets held by a member that is an entity described in paragraph (e)(5)(ii) or (iii) of this section and assets resulting from transactions between related members of the expanded affiliated group) are assets that produce or are held for the production of passive income; and (2) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(B)(2). (C) Holding company. For purposes of this paragraph (e)(5)(i), an entity is a holding company if its primary activity consists of holding (directly or indirectly) all or part of the outstanding stock of one or more members of its expanded affiliated group. A partnership or any other non-corporate entity shall be treated as a holding company if substantially all the activities of such partnership (or other entity) consist of holding more than 50 percent of the voting power and value of the stock of one or more common parent corporation(s) of one or more expanded affiliated group(s). If a partnership or other non-corporate entity owns more than 50 percent of the voting power and value of the stock of more than one common parent corporation of an expanded affiliated group, each common parent corporation’s expanded affiliated group will be treated as a separate expanded affiliated group for purposes of applying the rules of this section unless a noncorporate entity is treated as the common parent entity of the expanded affiliated group in accordance with § 1.1471–5(i)(10). E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (D) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(D). (1) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(D)(1). (i) through (iii) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(D)(1)(i) through (iii). (iv) Managing the working capital of the expanded affiliated group (or any member thereof) such as by pooling the cash balances of affiliates (including both positive and deficit cash balances) or by investing or trading in financial assets solely for the account and risk of such entity or any member of its expanded affiliated group; or (v) Acting as a financing vehicle for the expanded affiliated group (or any member thereof). (2) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(D)(2). (i) through (ii) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(D)(2)(i) through (ii). (E) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(i)(E). (ii) through (iii) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(ii) through (iii). (iv) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(iv). (A) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(iv)(A). (B) The entity does not hold an account (other than a depository account in the country in which the entity is operating to pay for expenses in that country) with or receive payments from any withholding agent other than a member of its expanded affiliated group; (C) through (D) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(iv)(C) through (D). (v) [Reserved]. For further guidance, see § 1.1471–5(e)(5)(v) through (e)(5)(vi)(D). (6) [Reserved]. For further guidance, see § 1.1471–5(e)(6). (f) [Reserved]. For further guidance, see § 1.1471–5(f). (1) [Reserved]. For further guidance, see § 1.1471–5(f)(1). (i) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i). (A) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(A). (1) through (5) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(A)(1) through (5). (6) By the later of June 30, 2014, or the date it registers as a deemed-compliant FFI, the FFI implements policies and procedures, consistent with those set forth for a participating FFI under § 1.1471–4(c), to monitor whether the FFI opens or maintains an account for a specified U.S. person who is not a resident of the country in which the FFI VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 is incorporated or organized (including a U.S. person that was a resident when the account was opened but subsequently ceases to be a resident), an entity controlled or beneficially owned (as determined under the FFI’s AML due diligence) by one or more specified U.S. persons that are not residents of the country in which the FFI is incorporated or organized, or a nonparticipating FFI. Such policies and procedures must provide that if any such account is discovered, the FFI will close such account, transfer such account to a participating FFI, reporting Model 1 FFI, or U.S. financial institution, or withhold and report on such account as would be required under § 1.1471–4(b) and (d) if the FFI were a participating FFI. (7) through (9) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(A)(7) through (9). (B) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(B). (1) By the later of June 30, 2014, or the date it registers with the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI implements policies and procedures to ensure that within six months of opening a U.S. account or an account held by a recalcitrant account holder or a nonparticipating FFI, the FFI either transfers such account to an affiliate that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution, closes the account, or becomes a participating FFI. (2) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(B)(2). (3) By the later of June 30, 2014, or the date it registers with the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI implements policies and procedures to ensure that it identifies any account that becomes a U.S. account or an account held by a recalcitrant account holder or a nonparticipating FFI due to a change in circumstances. Within six months of the date on which the FFI first has knowledge or reason to know of the change in the account holder’s chapter 4 status, the FFI transfers any such account to an affiliate that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution, closes the account, or becomes a participating FFI. (C) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(C). (1) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(C)(1). (2) Each holder of record of direct debt interests in the FFI in excess of $50,000, of any direct equity interests in the FFI (for example the holders of its units or global certificates), and of any other account holder of the FFI is a participating FFI, a registered deemedcompliant FFI, a retirement plan PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 12853 described in § 1.1471–6(f), a non-profit organization described in paragraph (e)(5)(vi) of this section, a U.S. person that is not a specified U.S. person, a nonreporting IGA FFI, or an exempt beneficial owner. Notwithstanding the prior sentence, an FFI will not be prohibited from qualifying as a qualified collective investment vehicle solely because it has issued interests in bearer form provided that the FFI ceased issuing interests in such form after December 31, 2012, retires all such interests upon surrender, and establishes policies and procedures to redeem or immobilize all such interests prior to January 1, 2017, and that prior to payment the FFI documents the account holder in accordance with the procedures set forth in § 1.1471–4(c) applicable to accounts other than preexisting accounts and agrees to withhold and report on such accounts as would be required under § 1.1471– 4(b) and (d) if it were a participating FFI. For purposes of this paragraph (f)(1)(i)(C), an FFI may disregard equity interests owned by specified U.S. persons acquired with seed capital within the meaning of paragraph (i)(4) of this section if the specified U.S. person is described in paragraph (i)(3)(i) and (ii) of this section (substituting the term U.S. person for the terms FFI and member), and the specified U.S. person neither has held, nor intends to hold, such interest for more than three years. (3) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(C)(3). (D) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(D). (1) through (3) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(D)(1) through (3). (4) The FFI ensures that by the later of December 31, 2014, or six months after the date the FFI registers as a deemed-compliant FFI, each agreement that governs the distribution of its debt or equity interests prohibits sales and other transfers of debt or equity interests in the FFI (other than interests that are both distributed by and held through a participating FFI) to specified U.S. persons, nonparticipating FFIs, or passive NFFEs with one or more substantial U.S. owners. In addition, by that date, the FFI’s prospectus and all marketing materials must indicate that sales and other transfers of interests in the FFI to specified U.S. persons, nonparticipating FFIs, or passive NFFEs with one or more substantial U.S. owners are prohibited unless such interests are both distributed by and held through a participating FFI. (5) The FFI ensures that by the later of December 31, 2014, or six months after the date the FFI registers as a E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12854 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations deemed-compliant FFI, each agreement entered into by the FFI that governs the distribution of its debt or equity interests requires the distributor to notify the FFI of a change in the distributor’s chapter 4 status within 90 days of the change. The FFI must, with respect to any distributor that ceases to qualify as a distributor identified in paragraph (f)(1)(i)(D)(3) of this section, terminate its distribution agreement with the distributor, or cause the distribution agreement to be terminated, within 90 days of the notification of the distributor’s change in status and, with respect to all debt and equity interests of the FFI issued through that distributor, redeem those interests, convert those interests to direct holdings in the fund, or cause those interests to be transferred to another distributor identified in paragraph (f)(1)(i)(D)(3) of this section within six months of the distributor’s change in status. (6) With respect to any of the FFI’s preexisting direct accounts that are held by the beneficial owner of the interest in the FFI, the FFI reviews those accounts in accordance with the procedures (and time frames) described in § 1.1471–4(c) applicable to preexisting accounts to identify any U.S. account or account held by a nonparticipating FFI. Notwithstanding the previous sentence, the FFI will not be required to review the account of any individual investor that purchased its interest at a time when all of the FFI’s distribution agreements and its prospectus contained an explicit prohibition of the issuance and/or sale of shares to U.S. entities and U.S. resident individuals. An FFI will not be required to review the account of any investor that purchased its interest in bearer form until the time of payment, but at such time will be required to document the account in accordance with procedures set forth in § 1.1471– 4(c) applicable to accounts other than preexisting accounts. By the later of December 31, 2014, or six months after the date the FFI registers as a deemedcompliant FFI, the FFI will be required to certify to the IRS either that it did not identify any U.S. account or account held by a nonparticipating FFI as a result of its review or, if any such accounts were identified, that the FFI will either redeem such accounts, transfer such accounts to an affiliate or other FFI that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution, or withhold and report on such accounts as would be required under § 1.1471–4(b) and (d) if it were a participating FFI. VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (7) By the later of June 30, 2014, or the date that it registers as a deemedcompliant FFI, the FFI implements the policies and procedures described in § 1.1471–4(c) to ensure that it either— (i) through (ii) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(D)(7)(i) through (ii). (8) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(D)(8). (E) Qualified credit card issuers and servicers. An FFI is described in this paragraph (f)(1)(i)(E) if the FFI meets the following requirements. (1) The FFI is an FFI solely because it is an issuer or servicer of credit cards that accepts deposits, on its own behalf or, in the case of a servicer, on behalf of a credit card issuer, only when a customer makes a payment in excess of a balance due with respect to the credit card account and the overpayment is not immediately returned to the customer. (2) By the later of June 30, 2014, or the date it registers as a deemed-compliant FFI, the FFI implements policies and procedures to either prevent a customer deposit in excess of $50,000 or to ensure that any customer deposit in excess of $50,000 is refunded to the customer within 60 days. For this purpose, a customer deposit does not refer to credit balances to the extent of disputed charges but does include credit balances resulting from merchandise returns. (F) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F). (1) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(1). (i) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(1)(i). (ii) An entity, other than a nonparticipating FFI, has agreed with the FFI to act as a sponsoring entity for the FFI. (2) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(2) through (f)(1)(i)(F)(2)(iii). (3) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(3). (i) through (iv) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(3)(i) through (iv). (v) Identifies the FFI in all reporting completed on the FFI’s behalf to the extent required under §§ 1.1471– 4(d)(2)(ii)(C) and 1.1474–1; (vi) Performs the verification procedures required under § 1.1471–4(f) on behalf of the FFI, including the certification required under § 1.1471– 4(f)(3); (vii) Performs the verification procedures required under paragraphs (j) and (k) of this section; and (viii) Has not had its status as a sponsoring entity revoked. (4) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(i)(F)(4). PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 (5) A sponsoring entity is not liable for any failure to comply with the obligations contained in paragraph (f)(1)(i)(F)(3) of this section unless the sponsoring entity is a withholding agent that is separately liable for the failure to withhold on or report with respect to a payment made to the sponsored FFI. A sponsored FFI will remain liable for any failure of its sponsoring entity to comply with the obligations contained in paragraph (f)(1)(i)(F)(3) of this section that the sponsoring entity has agreed to undertake on behalf of the FFI, even if the sponsoring entity is also a withholding agent and is itself separately liable for the failure to withhold on or report with respect to a payment made to the sponsored FFI. The same tax, interest, or penalties, however, shall not be collected more than once. (ii) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(ii). (A) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(ii)(A). (B) Have its responsible officer certify every three years to the IRS, either individually or collectively for the FFI’s expanded affiliated group, that all of the requirements for the deemed-compliant category claimed by the FFI have been satisfied since the later of the date the FFI registers as a deemed-compliant FFI or June 30, 2014; (C) through (D) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(ii)(C) through (D). (iii) [Reserved]. For further guidance, see § 1.1471–5(f)(1)(iii). (2) Certified deemed-compliant FFIs. A certified deemed-compliant FFI means an FFI described in any of paragraphs (f)(2)(i) through (v) of this section that has certified as to its status as a deemed-compliant FFI by providing a withholding agent with the documentation described in § 1.1471– 3(d)(6) applicable to the relevant deemed-compliant category. A certified deemed-compliant FFI also includes a nonreporting FFI under a Model 1 IGA and a nonreporting FFI treated as a certified deemed-compliant FFI under a Model 2 IGA. A certified deemedcompliant FFI is not required to register with the IRS. (i) [Reserved]. For further guidance, see § 1.1471–5(f)(2)(i). (A) [Reserved]. For further guidance, see § 1.1471–5(f)(2)(i)(A) through (f)(2)(i)(A)(2). (B) The FFI’s business consists primarily of receiving deposits from and making loans to, with respect to a bank, retail customers that are unrelated to such bank and, with respect to a credit union or similar cooperative credit organization, members, provided that no E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations such member has a greater than 5 percent interest in such credit union or cooperative credit organization. For purposes of this paragraph (f)(2)(i)(B), a customer is related to a bank if the customer and the bank have a relationship described in section 267(b). For purposes of determining whether a member has a greater than 5 percent interest in a credit union or cooperative credit organization, the member must aggregate the ownership or beneficial interests in the credit union or cooperative credit organization that are owned or held by a related member. A member of a credit union or cooperative credit organization is related to another member if the relationship of such members is described in section 267(b). (C) through (F) [Reserved]. For further guidance, see § 1.1471–5(f)(2)(i)(C) through (F). (ii) [Reserved]. For further guidance, see § 1.1471–5(f)(2)(ii) through (f)(2)(ii)(C). (iii) Sponsored, closely held investment vehicles. Subject to the provisions of paragraph (f)(2)(iii)(F) of this section, an FFI is described in this paragraph (f)(2)(iii) if it meets the requirements described in paragraphs (f)(2)(iii)(A) through (D) of this section. (A) The FFI is an FFI solely because it is an investment entity and is not a QI, WP, or WT. (B) A participating FFI, reporting Model 1 FFI, or U.S. financial institution agrees to fulfill all due diligence, withholding, and reporting responsibilities that the FFI would have assumed if it were a participating FFI. (C) Twenty or fewer individuals own all of the debt and equity interests in the FFI (disregarding debt interests owned by U.S. financial institutions, participating FFIs, registered deemedcompliant FFIs, and certified deemedcompliant FFIs and equity interests owned by an entity if that entity owns 100 percent of the equity interests in the FFI and is itself a sponsored FFI under this paragraph (f)(2)(iii)). (D) The sponsoring entity complies with the following requirements— (1) The sponsoring entity has registered with the IRS as a sponsoring entity; (2) The sponsoring entity agrees to perform, on behalf of the FFI, all due diligence, withholding, reporting, and other requirements that the FFI would have been required to perform if it were a participating FFI and retains documentation collected with respect to the FFI for a period of six years; (3) The sponsoring entity identifies the FFI in all reporting completed on the FFI’s behalf to the extent required VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 under §§ 1.1471–4(d)(2)(ii)(C) and 1.1474–1; (4) Performs the verification procedures required under § 1.1471–4(f) on behalf of the FFI, including the certification required under § 1.1471– 4(f)(3); (5) Performs the verification procedures required under paragraphs (j) and (k) of this section; and (6) The sponsoring entity has not had its status as a sponsor revoked. (E) The IRS may revoke a sponsoring entity’s status as a sponsoring entity with respect to all sponsored FFIs if there is a material failure by the sponsoring entity to comply with its obligations under this paragraph (f)(2)(iii)(E) with respect to any sponsored FFI. A sponsoring entity is not liable for any failure to comply with the obligations contained in this paragraph (f)(2)(iii)(E) unless the sponsoring entity is a withholding agent that is separately liable for the failure to withhold on or report with respect to the payment made to the sponsored FFI. A sponsored FFI will remain liable for any failure of its sponsoring entity to comply with the obligations contained in this paragraph (f)(2)(iii)(E) that the sponsoring entity has agreed to undertake on behalf of the FFI, even if the sponsoring entity is also a withholding agent and is itself separately liable for the failure to withhold on or report with respect to a payment made to the sponsored FFI. The same tax, interest, or penalties, however, shall not be collected more than once. (iv) Limited life debt investment entities (transitional). An FFI is described in this paragraph (f)(2)(iv) if the FFI is the beneficial owner of the payment (or of payments made with respect to the account) and the FFI meets the following requirements. (A) The FFI is an investment entity that issued one or more classes of debt or equity interests to investors pursuant to a trust indenture or similar agreement and all of such interests were issued on or before January 17, 2013. (B) The FFI was in existence as of January 17, 2013, and has entered into a trust indenture or similar agreement that requires the FFI to pay to investors holding substantially all of the interests in the FFI, no later than a set date or period following the maturity of the last asset held by the FFI, all amounts that such investors are entitled to receive from the FFI. (C) The FFI was formed and operated for the purpose of purchasing or acquiring specific types of debt instruments or interests therein and holding those assets subject to PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 12855 reinvestment only under prescribed circumstances to maturity. (D) Substantially all of the assets of the FFI consist of debt instruments or interests therein. (E) All payments made to the investors of the FFI (other than holders of a de minimis interest) are either cleared through a clearing organization or custodial institution that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution or made through a transfer agent that is a participating FFI, reporting Model 1 FFI, or U.S. financial institution. (F) The FFI’s trustee or fiduciary is not authorized through a fiduciary duty or otherwise to fulfill the obligations of a participating FFI under § 1.1471–4 and no other person has the authority to fulfill the obligations of a participating FFI under § 1.1471–4 on behalf of the FFI. (v) Investment advisors and investment managers. An FFI is described in this paragraph (f)(2)(v) if the FFI meets the following requirements: (A) The FFI is a financial institution solely because it is described in § 1.1471–5(e)(4)(i)(A). (B) The FFI does not maintain financial accounts. (3) [Reserved]. For further guidance, see § 1.1471–5(f)(3). (i) [Reserved]. For further guidance, see § 1.1471–5(f)(3)(i). (ii) [Reserved]. For further guidance, see § 1.1471–5(f)(3)(ii). (A) through (E) [Reserved]. For further guidance, see § 1.1471–5(f)(3)(ii)(A) through (E). (4) [Reserved]. For further guidance, see § 1.1471–5(f)(4). (i) The distributor provides investment services to at least 30 customers unrelated to each other and fewer than half of the distributor’s customers are related to each other. For purposes of this paragraph (f)(4)(i), customers are related to each other if they have a relationship with each other described in section 267(b). (ii) through (viii) [Reserved]. For further guidance, see § 1.1471–5(f)(4)(ii) through (viii). (g) [Reserved]. For further guidance, see § 1.1471–5(g). (1) through (2) [Reserved]. For further guidance, see § 1.1471–5(g)(1) through (g)(2)(iv). (3) [Reserved]. For further guidance, see § 1.1471–5(g)(3). (i) [Reserved]. For further guidance, see § 1.1471–5(g)(3)(i). (A) through (C) [Reserved]. For further guidance, see § 1.1471–5(g)(3)(i)(A) through (C). (D) Preexisting accounts that become high-value accounts. With respect to a E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12856 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations calendar year beginning after December 31, 2015, an account holder that is described in paragraph (g)(2) of this section and that holds a preexisting account that a participating FFI identifies as a high-value account pursuant to § 1.1471–4(c)(5)(iv)(D) will be treated as a recalcitrant account holder beginning on the earlier of the date a withholdable payment is made to the account following end of the calendar year in which the account is identified as a high-value account or the date that is six months after the calendar year end. (ii) through (iii) [Reserved]. For further guidance, see § 1.1471–5(g)(3)(ii) through (iii). (4) [Reserved]. For further guidance, see § 1.1471–5(g)(4). (h) [Reserved]. For further guidance, see § 1.1471–5(h) through (h)(2). (i) Expanded affiliated group— Scope of paragraph. This paragraph (i) defines the term expanded affiliated group for purposes of chapter 4. For the requirements of a participating FFI with respect to members of its expanded affiliated group that are FFIs, see § 1.1471–4(e). (1) [Reserved]. For further guidance, see § 1.1471–5(i)(1). (2) Expanded affiliated group defined. Except as otherwise provided in this paragraph (i), an expanded affiliated group is defined in accordance with the principles of section 1504(a) to mean one or more chains of members connected through ownership by a common parent entity if the common parent entity directly owns stock or other equity interests meeting the requirements of paragraph (i)(4) of this section in at least one of the other members (for purposes of this paragraph (i), the constructive ownership rules of section 318 do not apply). Generally, only a corporation shall be treated as the common parent entity of an expanded affiliated group, unless the taxpayer elects to follow the approach described in paragraph (i)(10). (3) Member of expanded affiliated group. The term member of an expanded affiliated group means a corporation or any entity other than a corporation (such as a partnership or trust) with respect to which the ownership requirements of paragraph (i)(4) of this section are met, regardless of whether such entity is a U.S. person or a foreign person, but excluding corporations described in paragraphs (1), (4), (6), (7), or (8) of section 1504(b). (4) Ownership test. The ownership requirements of this paragraph (i)(4) are met if— (i) Corporations. For purposes of paragraph (i)(2) of this section, a VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 corporation (except the common parent entity) will be considered owned by another member entity or by the common parent entity if more than 50 percent of the total voting power of the stock of such corporation and more than 50 percent of the total value of the stock of such corporation is owned directly by one or more other members of the group (including the common parent entity). (A) Stock not to include certain preferred stock. For purposes of this paragraph (i)(4), the term stock does not include any stock which is described in section 1504(a)(4). (B) Valuation. For purposes of section 1471(e) and this section, all shares of stock within a single class are considered to have the same value in determining the ownership percentage. Thus, control premiums and minority blockage discounts within a single class are not taken into account. (ii) Partnerships. For purposes of paragraph (i)(2) of this section, a partnership will be considered owned by another member entity (including the common parent entity) if more than 50 percent (by value) of the capital or profits interest in the partnership is owned directly by one or more other members of the group (including the common parent entity). (iii) Trusts. For purposes of paragraph (i)(2) of this section, a trust will be considered owned by another member entity or by the common parent entity if more than 50 percent (by value) of the beneficial interest in such trust is owned directly by one or more other members of the group (including the common parent entity). A beneficial interest in a trust includes an interest held by an entity treated as a grantor or other owner of the trust under sections 671 through 679 and a beneficial trust interest. (5) Treatment of warrants, options, and obligations convertible into equity for determining ownership. For purposes of paragraph (i)(4) of this section, ownership of warrants, options, obligations convertible into the equity of a corporation or entity other than a corporation, and other similar interests is not considered for purposes of determining whether an entity is a member of an expanded affiliated group, except as follows: (i) Ownership of a warrant, option, obligation convertible into stock, or other similar instrument creating an interest in a corporation will be considered for purposes of paragraph (i)(4) of this section to the extent that the common parent or member of the expanded affiliated group that holds such instrument also maintains voting rights with respect to such corporation. PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 However, interests described in § 1.1504–4(d)(2) will not be treated as options. (ii) Ownership of a warrant, option, obligation convertible into an equity interest, or other similar instrument creating an interest in a corporation or entity other than a corporation will be considered for purposes of paragraph (i)(4) of this section to the extent that such instrument is reasonably certain to be exercised, based on all of the facts and circumstances and in accordance with the principles set forth in § 1.1504– 4(g). (6) Exception for FFIs holding certain capital investments. Notwithstanding paragraphs (i)(2) and (i)(4) of this section, an investment entity will not be considered a member of an expanded affiliated group as a result of a contribution of seed capital by a member of such expanded affiliated group if— (i) The member that owns the investment entity is an FFI that is in the business of providing seed capital to form investment entities, the interests in which it intends to sell to investors that do not have a relationship with each other described in section 267(b); (ii) The investment entity is created in the ordinary course of such other FFI’s business described in paragraph (i)(6)(i) of this section; (iii) As of the date the FFI acquired the equity interest, any equity interest in the investment entity in excess of 50 percent of the total value of the stock of the investment entity is intended to be held by such other FFI (including ownership by other members of such other FFI’s expanded affiliated group) for no more than three years from the date on which such other FFI first acquired an equity interest in the investment entity; and (iv) In the case of an equity interest that has been held by such other FFI for over three years from the date referenced in paragraph (i)(6)(iii) of this section, the aggregate value of the equity interest held by such other FFI and the equity interests held by other members of its expanded affiliated group is 50 percent or less of the total value of the stock of the investment entity. (7) Seed capital. For purposes of this paragraph (i), the term seed capital means an initial capital contribution made to an investment entity that is intended as a temporary investment and is deemed by the manager of the entity to be necessary or appropriate for the establishment of the entity, such as for the purpose of establishing a track record of investment performance for such entity, achieving economies of scale for diversified investment, E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations avoiding an artificially high expense to return ratio, or similar purposes. (8) Anti-abuse rule. A change in ownership, voting rights, or the form of an entity that results in an entity meeting or not meeting the ownership requirements described in paragraph (i)(4) of this section will be disregarded for purposes of determining whether an entity is a member of an expanded affiliated group if the change is pursuant to a plan a principal purpose of which is to avoid reporting or withholding that would otherwise be required under any chapter 4 provision. For purposes of this paragraph (i)(8), a change in voting rights includes a separation of voting rights and value. (9) Exception for limited life debt investment entities. Notwithstanding paragraphs (i)(2) and (i)(4) of this section, an entity that meets the requirements of § 1.1471–5(f)(2)(iv), including the requirements to have been in existence as of January 17, 2013, and to have issued interests in the entity on or before January 17, 2013, will not be considered a member of an expanded affiliated group as a result of any member of such expanded affiliated group owning interests in such entity. (10) Partnerships, trusts, and other non-corporate entities. For purposes of determining the composition of an expanded affiliated group, an entity other than a corporation may elect to be treated as the common parent entity. Taxpayers following this approach may not, in a later year, follow the rule described in paragraph (i)(2) without the approval of the Commissioner. See also § 1.1471–5(e)(5)(i)(C). (j) Sponsoring entity verification. [Reserved]. (k) Sponsoring entity event of default. [Reserved]. (l) [Reserved]. For further guidance, see § 1.1471–5(l). (m) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 12. In § 1.1471–6, revise paragraphs (d)(1), (d)(4), (f)(2)(iii)(B) through) (C), (f)(3)(ii) through (iii), (f)(5) through (6), (g), and (h)(2) to read as follows: § 1.1471–6 Payments beneficially owned by exempt beneficial owners. tkelley on DSK3SPTVN1PROD with RULES3 * * * * * (d) * * * (1) [Reserved]. For further guidance, see § 1.1471–6T(d)(1). * * * * * (4) [Reserved]. For further guidance, see § 1.1471–6T(d)(4). * * * * * (f) * * * VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (2) * * * (iii) * * * (B) [Reserved]. For further guidance, see § 1.1471–6T(f)(2)(iii)(B). (C) [Reserved]. For further guidance, see § 1.1471–6T(f)(2)(iii)(C). * * * * * (3) * * * (ii) [Reserved]. For further guidance, see § 1.1471–6T(f)(3)(ii). (iii) [Reserved]. For further guidance, see § 1.1471–6T(f)(3)(iii). * * * * * (5) [Reserved]. For further guidance, see § 1.1471–6T(f)(5). (6) [Reserved]. For further guidance, see § 1.1471–6T(f)(6). * * * * * (g) [Reserved]. For further guidance, see § 1.1471–6T(g). (h) * * * (2) [Reserved]. For further guidance, see § 1.1471–6T(h)(2) through (h)(2)(iii). * * * * * ■ Par. 13. Section 1.1471–6T is added to read as follows: § 1.1471–6T Payments beneficially owned by exempt beneficial owners (temporary). (a) through (c) [Reserved]. For further guidance, see § 1.1471–6(a) through (c)(3). (d) [Reserved]. For further guidance, see § 1.1471–6(d). (1) In general. Solely for purposes of this section and except as provided in paragraph (h) of this section, the term foreign central bank of issue means an institution that is by law or government sanction the principal authority, other than the government itself, issuing instruments intended to circulate as currency. Such an institution is generally the custodian of the banking reserves of the country under whose law it is organized. (2) through (3) [Reserved]. For further guidance, see § 1.1471–6(d)(2) through (3). (4) Income on certain transactions. Solely for purposes of determining whether an entity is an exempt beneficial owner of a payment under this paragraph (d), a foreign central bank of issue is a beneficial owner with respect to income earned on cash and securities, including cash and securities held as collateral or securities held in connection with a securities lending transaction, held by the foreign central bank of issue in the ordinary course of its operations as a central bank of issue. (e) [Reserved]. For further guidance, see § 1.1471–6(e). (f) [Reserved]. For further guidance, see § 1.1471–6(f). (1) [Reserved]. For further guidance, see § 1.1471–6(f)(1). PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 12857 (2) [Reserved]. For further guidance, see § 1.1471–6(f)(2). (i) through (ii) [Reserved]. For further guidance, see § 1.1471–6(f)(2)(i) through (ii). (iii) [Reserved]. For further guidance, see § 1.1471–6(f)(2)(iii). (A) [Reserved]. For further guidance, see § 1.1471–6(f)(2)(iii)(A). (B) The fund receives at least 50 percent of its total contributions (other than transfers of assets from accounts described in § 1.1471–5(b)(2)(i)(A) (referring to retirement and pension accounts), from retirement and pension accounts described in an applicable Model 1 or Model 2 IGA, or from other retirement funds described in this paragraph (f) or in an applicable Model 1 or Model 2 IGA) from the sponsoring employers; (C) Distributions or withdrawals from the fund are allowed only upon the occurrence of specified events related to retirement, disability, or death (except rollover distributions to accounts described in § 1.1471–5(b)(2)(i)(A) (referring to retirement and pension accounts), to retirement and pension accounts described in an applicable Model 1 or Model 2 IGA, or to other retirement funds described in this paragraph (f) or in an applicable Model 1 or Model 2 IGA), or penalties apply to distributions or withdrawals made before such specified events; or (D) [Reserved]. For further guidance, see § 1.1471–6(f)(2)(iii)(D). (3) [Reserved]. For further guidance, see § 1.1471–6(f)(3). (i) [Reserved]. For further guidance, see § 1.1471–6(f)(3)(i). (ii) The fund is sponsored by one or more employers and each of these employers are not investment entities or passive NFFEs; (iii) Employee and employer contributions to the fund (other than transfers of assets from other retirement plans described in paragraph (f)(1) of this section, from accounts described in § 1.1471–5(b)(2)(i)(A) (referring to retirement and pension accounts), or retirement and pension accounts described in an applicable Model 1 or Model 2 IGA) are limited by reference to earned income and compensation of the employee, respectively; (iv) through (v) [Reserved]. For further guidance, see § 1.1471–6(f)(3)(iv) through (v). (4) [Reserved]. For further guidance, see § 1.1471–6(f)(4). (5) Investment vehicles exclusively for retirement funds. A fund established exclusively to earn income for the benefit of one or more retirement funds described in paragraphs (f)(1) through (5) of this section or in an applicable E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12858 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations Model 1 or Model 2 IGA, accounts described in § 1.1471–5(b)(2)(i)(A) (referring to retirement and pension accounts), or retirement and pension accounts described in an applicable Model 1 or Model 2 IGA. (6) Pension fund of an exempt beneficial owner. A fund established and sponsored by an exempt beneficial owner described in paragraph (b), (c), (d), or (e) of this section or an exempt beneficial owner (other than a fund that qualifies as an exempt beneficial owner) described in an applicable Model 1 or Model 2 IGA to provide retirement, disability, or death benefits to beneficiaries or participants that are current or former employees of the exempt beneficial owner (or persons designated by such employees), or that are not current or former employees, but the benefits provided to such beneficiaries or participants are in consideration of personal services performed for the exempt beneficial owner. (7) [Reserved]. For further guidance, see § 1.1471–6(f)(7). (g) Entities wholly owned by exempt beneficial owners. A person is described in this paragraph (g) if it is an FFI solely because it is an investment entity, each direct holder of an equity interest in the investment entity is an exempt beneficial owner described in paragraph (b), (c), (d), (e), (f), or (g) of this section or an exempt beneficial owner described in an applicable Model 1 or Model 2 IGA, and each direct holder of a debt interest in the investment entity is either a depository institution (with respect to a loan made to such entity), an exempt beneficial owner described in paragraph (b), (c), (d), (e), (f), or (g) of this section, or an exempt beneficial owner described in an applicable Model 1 or Model 2 IGA. (h) [Reserved]. For further guidance, see § 1.1471–6(h). (1) [Reserved]. For further guidance, see § 1.1471–6(h)(1). (2) Limitation. Paragraph (h)(1) of this section will not apply to a foreign central bank of issue as described in paragraph (d) if— (i) The entity undertakes commercial financial activity described in paragraph (h)(1) of this section solely for or at the direction of other exempt beneficial owners and such commercial financial activity is consistent with the purposes of the entity; (ii) The entity has no outstanding debt that would be a financial account under § 1.1471–5(b)(1)(iii)(C); and (iii) The entity only maintains financial accounts that are depository accounts for current or former employees of the entity (and the spouses VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 and children of such employees) or financial accounts for exempt beneficial owners. (i) [Reserved]. For further guidance, see § 1.1471–6(i). (j) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 14. Section 1.1472–1 is amended: ■ 1. By redesignating paragraph (f) as paragraph (h). ■ 2. By adding paragraphs (c)(1)(vi) through (vii), (c)(3) through (5), (f), and (g). ■ 3. By revising paragraphs (b)(1) introductory text, (b)(2), (c)(1) introductory text, (c)(1)(i) introductory text, (c)(1)(ii) through (iii), (c)(1)(iv) introductory text, (c)(1)(iv)(C), (c)(1)(v), (c)(2), and (d)(1) through (2). The additions and revisions read as follows: § 1.1472–1 Withholding on NFFEs. * * * * * (b) * * * (1) [Reserved]. For further guidance, see § 1.1472–1T(b)(1). * * * * * (2) [Reserved]. For further guidance, see § 1.1472–1T(b)(2). (c) * * * (1) [Reserved]. For further guidance, see § 1.1472–1T(c)(1). (i) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(i). * * * * * (ii) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(ii). (iii) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(iii). (iv) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(iv). * * * * * (C) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(iv)(C). (v) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(v). (vi) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(vi). (vii) [Reserved]. For further guidance, see § 1.1472–1T(c)(1)(vii). (2) [Reserved]. For further guidance, see § 1.1472–1T(c)(2). (3) [Reserved]. For further guidance, see § 1.1472–1T(c)(3). (4) [Reserved]. For further guidance, see § 1.1472–1T(c)(4). (5) [Reserved]. For further guidance, see § 1.1472–1T(c)(5) through (c)(5)(iv). (d) * * * (1) [Reserved]. For further guidance, see § 1.1472–1T(d)(1). (2) [Reserved]. For further guidance, see § 1.1472–1T(d)(2). * * * * * (f) [Reserved]. For further guidance, see § 1.1472–1T(f). PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 (g) [Reserved]. For further guidance, see § 1.1472–1T(g). * * * * * ■ Par. 15. Section 1.1472–1T is added to read as follows: § 1.1472–1T Withholding on NFFEs (temporary). (a) [Reserved]. For further guidance, see § 1.1472–1(a). (b) [Reserved]. For further guidance, see § 1.1472–1(b). (1) In general. Except as otherwise provided in paragraph (b)(2) of this section (providing transitional relief) or paragraphs (c)(1) or (2) of this section (providing exceptions for payments to an excepted NFFE or an exempt beneficial owner), § 1.1471–2(a)(4)(i) (providing an exception to withholding if the withholding agent lacks control, custody, or knowledge), § 1.1471– 2(a)(4)(vii) (providing an exception to withholding for payments made to an account held with or equity interests traded through a clearing organization with FATCA-compliant membership), or § 1.1471–2(a)(4)(viii) (providing an exception to withholding for payments to certain excepted accounts), a withholding agent must withhold 30 percent of any withholdable payment made after June 30, 2014, to a payee that is a NFFE unless— (i) through (iii) [Reserved]. For further guidance, see § 1.1472–1(b)(1)(i) through (iii). (2) Transitional relief. For any withholdable payment made prior to July 1, 2016, with respect to a preexisting obligation to a payee that is not a prima facie FFI and for which a withholding agent does not have documentation indicating the payee’s status as a passive NFFE when the NFFE has failed to provide the owner certification as required under § 1.1471– 3(d)(12)(iii), the withholding agent is not required to withhold under this section or report under § 1.1474–1(i)(2) (describing the reporting obligations of withholding agents with respect to NFFEs). (c) [Reserved]. For further guidance, see § 1.1472–1(c). (1) Payments to an excepted NFFE. A withholding agent is not required to withhold under section 1472(a) and paragraph (b) of this section on a withholdable payment (or portion thereof) if the withholding agent can treat the payment as made to a payee that is an excepted NFFE. For purposes of this paragraph, the term excepted NFFE means a payee that the withholding agent may treat as a NFFE that is a QI, WP, or WT. Additionally, the term excepted NFFE means, with respect to the payment, a NFFE E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations described in paragraphs (c)(1)(i) through (vii) of this section to the extent the withholding agent may treat the NFFE as the beneficial owner of the payment. (i) Publicly traded corporation. A NFFE is described in this paragraph (c)(1)(i) if it is a corporation the stock of which is regularly traded on one or more established securities markets for the calendar year. (A) through (C) [Reserved]. For further guidance, see § 1.1472–1(c)(1)(i)(A) through (c)(1)(i)(C)(3). (ii) Certain affiliated entities related to a publicly traded corporation. A NFFE is described in this paragraph (c)(1)(ii) if it is a corporation that is a member of the same expanded affiliated group (as defined in § 1.1471–5(i)) as a corporation described in paragraph (c)(1)(i) of this section. (iii) Certain territory entities. A NFFE is described in this paragraph (c)(1)(iii) if it is a territory entity that is directly or indirectly wholly owned by one or more bona fide residents of the U.S. territory under the laws of which the entity is organized. The term bona fide resident of a U.S. territory means an individual who qualifies as a bona fide resident under section 937(a) and § 1.937–1. (iv) Active NFFEs. A NFFE is described in this paragraph (c)(1)(iv) if it is an entity (an active NFFE) and less than 50 percent of its gross income for the preceding taxable year (i.e., calendar or fiscal) is passive income and less than 50 percent of the weighted average percentage of assets (tested quarterly) held by it are assets that produce or are held for the production of passive income, as determined after the application of paragraph (c)(1)(iv)(B) of this section (passive assets). (A) through (B) [Reserved]. For further guidance, see § 1.1472–1(c)(1)(iv)(A) through (c)(1)(B)(2)(ii). (C) Methods of measuring assets. For purposes of this paragraph (c)(1)(iv), the value of a NFFE’s assets is determined based on the fair market value or book value of the assets that is reflected on the NFFE’s balance sheet (as determined under either a U.S. or an international financial accounting standard). (v) Excepted nonfinancial entities. A NFFE is described in this paragraph (c)(1)(v) if it is an entity described in § 1.1471–5(e)(5) (referring to holding companies, treasury centers, and captive finance companies that are members of a nonfinancial group; start-up companies; entities that are liquidating or emerging from bankruptcy; and nonprofit organizations). (vi) Direct reporting NFFEs. A NFFE is described in this paragraph (c)(1)(vi) if it meets the requirements described in VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 § 1.1472–1(c)(3) to be treated as a direct reporting NFFE. (vii) Sponsored direct reporting NFFEs. A NFFE is described in this paragraph (c)(1)(vii) if it meets the requirements described in § 1.1472– 1(c)(5) to be treated as a sponsored direct reporting NFFE. (2) Payments made to an exempt beneficial owner. A withholding agent is not required to withhold on a withholdable payment (or portion thereof) under section 1472(a) and paragraph (b) of this section if the withholding agent may treat the payment as made to an exempt beneficial owner. (3) Definition of direct reporting NFFE. A direct reporting NFFE means a NFFE that elects to report information about its direct or indirect substantial U.S. owners to the IRS and meets the following requirements— (i) The NFFE must register on Form 8957, ‘‘FATCA Registration,’’ (or such other form as the IRS may prescribe) with the IRS to obtain a GIIN pursuant to the procedures prescribed by the IRS; (ii) The NFFE must report directly to the IRS on Form 8966, ‘‘FATCA Report,’’ (or such other form as the IRS may prescribe) the following information for each calendar year (or, may be required by the IRS to certify on Form 8966, or in such other manner as the IRS may prescribe, that the NFFE has no substantial U.S. owners): (A) The name, address, and TIN of each substantial U.S. owner (as defined in § 1.1473–1(b)) of such NFFE; (B) The total of all payments made to each substantial U.S. owner (including the gross amounts paid or credited to the substantial U.S. owner with respect to such owner’s equity interest in the NFFE during the calendar year, which include payments in redemption or liquidation (in whole or part) of the substantial U.S. owner’s equity interest in the NFFE); (C) The value of each substantial U.S. owner’s equity interest in the NFFE determined by applying the rules described in § 1.1471–5(b)(4) (substituting the term equity for the terms account and financial account); (D) The name, address, and GIIN of the NFFE, and (E) Any other information as required by Form 8966 (or such other form as the IRS may prescribe) and its accompanying instructions; (iii) The NFFE must obtain a written certification (contained on a withholding certificate or in a written statement) from each person that would be treated as a substantial U.S. owner of the NFFE if such person were a specified U.S. person. Such written PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 12859 certification must indicate whether the person is a substantial U.S. owner of the NFFE, and if so, the name, address and TIN of the person. If the NFFE has reason to know that such written certification is unreliable or incorrect, it must contact the person and request a revised written certification. If no revised written certification is received, the NFFE must treat the person as a substantial U.S. owner and report on Form 8966 the information required under paragraph (c)(3)(ii) of this section. The NFFE has reason to know that such a written certification is unreliable or incorrect if the certification is inconsistent with information in the NFFE’s possession, including information that the NFFE provides to a financial institution in order for the financial institution to meet its AML or other account identification due diligence procedures with respect to the NFFE’s account, information that is publicly available, and U.S. indicia as described in § 1.1441–7(b) and for which appropriate documentation sufficient to cure the U.S. indicia in the manner set forth in § 1.1441–7(b)(8) has not been obtained. (iv) The NFFE must keep records that it produces in the ordinary course of its business that summarize the activity (including the gross amounts described in paragraph (c)(3)(ii)(B) that are paid or credited to each of its substantial U.S. owners) relating to its transactions with respect to the equity of the NFFE held by each of its substantial U.S. owners for any calendar year in which the owner was required to be reported under paragraph (c)(3)(ii) of this section. The records must be retained for the longer of six years or the retention period under the NFFE’s normal business procedures. A NFFE may be required to extend the six year retention period if the IRS requests such an extension prior to the expiration of the six year period; (v) The NFFE must respond to requests made by the IRS for additional information with respect to any substantial U.S. owner that is subject to reporting by the NFFE or with respect to the records described in paragraphs (c)(3)(iii) or (iv) of this section; (vi) The NFFE must make a periodic certification to the IRS within each sixmonth period following the end of each certification period relating to its compliance with respect to the election described in paragraphs (c)(3) and (4) of this section. The first certification period begins on the date a GIIN is issued and ends at the close of the third full calendar year following that date. Each subsequent certification period is the three calendar year period following E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12860 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations the close of the previous certification period. The certification will require an officer of the NFFE to certify to the following statements— (A)(1) The NFFE has not had any events of default described in paragraph (c)(4)(v) of this section; or (2) If there are any events of default, appropriate measures were taken to remediate such failures and to prevent such failures from recurring; and (B) With respect to any failure to report to the extent required under paragraph (c)(3)(ii), the NFFE has corrected such failure by filing the appropriate information returns; and (vii) The NFFE has not had its status as a direct reporting NFFE revoked by the IRS. (4) Election to be treated as a direct reporting NFFE—(i) Manner of making election. A NFFE may elect to be treated as a direct reporting NFFE by registering on Form 8957 (or such other form as the IRS may prescribe) with the IRS to obtain a GIIN pursuant to the procedures prescribed by the IRS. (ii) Effective date of election. The election is effective upon the issuance of a GIIN to the NFFE. (iii) Revocation of election by NFFE. The election may not be revoked by the NFFE without the consent of the Commissioner. The NFFE must notify its sponsoring entity (if applicable) and all relevant withholding agents if it revokes its election. (iv) Revocation of election by Commissioner. The election may be revoked by the Commissioner upon an event of default described in paragraph (v) of this section. (v) Event of default. An event of default occurs if a direct reporting NFFE fails to perform any of the obligations described in (c)(3)(i) through (vi) of this section. An event of default also includes any misrepresentation of a material fact to the IRS. (vi) Notice of event of default. Following an event of default known by or disclosed to the IRS, the IRS will deliver to the NFFE a notice of default specifying the event of default. The IRS will request that the NFFE remediate the event of default within a specified time period. The NFFE must respond to the notice of default and provide information responsive to an IRS request for information or state the reasons why the NFFE does not agree that an event of default has occurred. If the NFFE does not provide a response within the specified time period, the IRS may, at its sole discretion, deliver a notice to the NFFE that its election to be treated as a direct reporting NFFE has been revoked. A NFFE may request, within 90 days of receipt, VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 reconsideration of a notice of default or notice of revocation by written request to the Deputy Commissioner (International), LB&I. (vii) Remediation of event of default. A NFFE will be permitted to remediate an event of default to the extent it agrees with the IRS on a remediation plan. The IRS may, as part of a remediation plan, require additional information from the NFFE. (5) Election by a direct reporting NFFE to be treated as a sponsored direct reporting NFFE. (i) Definition of sponsored direct reporting NFFE. A NFFE is a sponsored direct reporting NFFE if the NFFE is a direct reporting NFFE and if another entity, other than a nonparticipating FFI, has agreed with the NFFE to act as its sponsoring entity, as described in paragraph (c)(5)(ii) of this section. (ii) Requirements for sponsoring entity of a sponsored direct reporting NFFE. A sponsoring entity meets the requirements of this paragraph (c)(5)(ii) if the sponsoring entity— (A) Is authorized to act on behalf of the NFFE; (B) Has registered with the IRS as a sponsoring entity; (C) Has registered the NFFE with the IRS as a sponsored direct reporting NFFE; (D) Agrees to perform, on behalf of the NFFE, all due diligence, reporting, and other requirements that the NFFE would have been required to perform as a direct reporting NFFE; (E) Identifies the NFFE in all reporting completed on the NFFE’s behalf; (F) Complies with the certification and other requirements in paragraphs (f) and (g) of this section; (G) Has not had its status as a sponsoring entity revoked; and (H) Agrees to notify all relevant withholding agents and the IRS if its status as a sponsoring entity is revoked, if it otherwise ceases to be the sponsoring entity of any of its sponsored direct reporting NFFEs (for example, if the sponsored direct reporting NFFE changes sponsors), or if the status of any of its sponsored direct reporting NFFEs has been revoked. (iii) Revocation of status as sponsoring entity. The IRS may revoke a sponsoring entity’s status as a sponsoring entity with respect to all sponsored direct reporting NFFEs if there is a material failure by the sponsoring entity to comply with its obligations under paragraph (c)(5)(ii) of this section with respect to any sponsored direct reporting NFFE. (iv) Liability of sponsoring entity. A sponsoring entity is not liable for any failure to comply with the obligations PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 contained in paragraph (c)(5)(ii) of this section. A sponsored direct reporting NFFE will remain liable for all of its chapter 4 obligations without regard to any failure of its sponsoring entity to comply with the obligations contained in paragraph (c)(5)(ii) of this section that the sponsoring entity has agreed to undertake on behalf of the NFFE. (d) [Reserved]. For further guidance, see § 1.1472–1(d). (1) In general. For purposes of this section, except in the case of a payee that is a QI, WP, or WT, a withholding agent may treat a withholdable payment as beneficially owned by the payee as determined under § 1.1471–3. Thus, a withholding agent may treat a withholdable payment as beneficially owned by an excepted NFFE (other than a QI, WP, or WT) if the withholding agent can reliably associate the payment with valid documentation to determine the payee’s status as an excepted NFFE under the rules of § 1.1471–3(d). (2) Payments made to a NFFE that is a QI, WP, or WT. A withholding agent may treat the payee of a withholdable payment as a NFFE that is a QI, WP, or WT if the withholding agent can reliably associate the payment with valid documentation to determine the payee’s status as such under the rules of § 1.1471–3(b)(3) and (d). (3) through (5) [Reserved]. For further guidance, see § 1.1472–1(d)(3) through (5). (e) [Reserved]. For further guidance, see § 1.1472–1(e) through (e)(2). (f) Sponsoring entity verification. [Reserved]. (g) Sponsoring entity event of default. [Reserved]. (h) [Reserved]. For further guidance, see § 1.1472–1(h). (i) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 16. Section 1.1473–1 is amended by revising paragraphs (a)(2)(vi), (a)(3)(iii)(B)(4), (a)(4)(vi), (a)(5)(i) through (vi), and (b)(2)(v) and by adding new paragraph (a)(4)(vii) to read as follows: § 1.1473–1 Section 1473 definitions. (a) * * * (2) * * * (vi) [Reserved]. For further guidance, see § 1.1473–1T(a)(2)(vi). * * * * * (3) * * * (iii) * * * (B) * * * (4) [Reserved]. For further guidance, see § 1.1473–1T(a)(3)(iii)(B)(4). * * * * * (4) * * * E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (vi) [Reserved]. For further guidance, see § 1.1473–1T(a)(4)(vi). (vii) [Reserved]. For further guidance, see § 1.1473–1T(a)(4)(vii). (5) * * * (i) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(i). (ii) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(ii). (iii) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(iii). (iv) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(iv). (v) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(v). (vi) [Reserved]. For further guidance, see § 1.1473–1T(a)(5)(vi). * * * * * (b) * * * (2) * * * (v) [Reserved]. For further guidance, see § 1.1473–1T(b)(2)(v). * * * * * ■ Par. 17. Section 1.1473–1T is added to read as follows: tkelley on DSK3SPTVN1PROD with RULES3 § 1.1473–1T Section 1473 definitions (temporary). (a) [Reserved]. For further guidance, see § 1.1473–1(a). (1) [Reserved]. For further guidance, see § 1.1473–1(a)(1) through (a)(1)(ii). (2) [Reserved]. For further guidance, see § 1.1473–1(a)(2). (i) through (v) [Reserved]. For further guidance, see § 1.1473–1(a)(2)(i) through (v). (vi) Special rule for sales of interest bearing debt obligations. Income that is otherwise described as U.S. source FDAP income in paragraphs (a)(2)(i) through (v) of this section does not include an amount of interest accrued on the date of a sale or exchange of an interest bearing debt obligation if the sale occurs between two interest payment dates and is not part of a plan described in § 1.1441–3(b)(2)(ii). (vii) [Reserved]. For further guidance, see § 1.1473–1(a)(2)(vii) through (a)(2)(vii)(B). (3) [Reserved]. For further guidance, see § 1.1473–1(a)(3). (i) through (ii) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(i) through (a)(3)(ii)(C). (iii) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(iii). (A) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(iii)(A). (B) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(iii)(B). (1) through (3) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(iii)(B)(1) through (3). (4) In the case of a sale of an obligation described in paragraph (a)(2)(vi), gross proceeds includes any VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 interest accrued between interest payment dates other than an amount described in paragraph (a)(2)(vi) of this section that is treated as U.S. source FDAP income; and (5) [Reserved]. For further guidance, see § 1.1473–1(a)(3)(iii)(B)(4). (4) [Reserved]. For further guidance, see § 1.1473–1(a)(4). (i) through (v) [Reserved]. For further guidance, see § 1.1473–1(a)(4)(i) through (v). (vi) Offshore payments of U.S. source FDAP income prior to 2017 (transitional). A payment with respect to an offshore obligation made prior to January 1, 2017, if such payment is U.S. source FDAP income and made by a person that is not acting as an intermediary or as a WP or WT with respect to the payment. The exception for offshore payments of U.S. source FDAP income provided in the preceding sentence shall not apply, however, in the case of a flow-through entity that has a residual withholding requirement with respect to its partners, owners, or beneficiaries under § 1.1471–2(a)(2)(ii), or in the case of payments made with respect to debt or equity issued by a U.S. person (excluding interest payments made by a foreign branch of a U.S. financial institution with respect to depository accounts it maintains for retail customers). For purposes of this paragraph (a)(4)(vi), an intermediary includes a person that acts as a qualified securities lender as defined for purposes of chapter 3 and does not include a person acting as an insurance broker with respect to premiums. (vii) Collateral arrangements prior to 2017 (transitional). A payment made prior to January 1, 2017, by a secured party with respect to collateral securing one or more transactions under a collateral arrangement, provided that only a commercially reasonable amount of collateral is held by the secured party as part of the collateral arrangement. For purposes of this paragraph (a)(4)(vii), the term transaction generally includes a debt instrument, a derivative financial instrument (including a notional principal contract, future, forward, and option), and any securities lending transaction, sale-repurchase transaction, margin loan, or substantially similar transaction that is subject to a collateral arrangement. (5) [Reserved]. For further guidance, see § 1.1473–1(a)(5). (i) In general. This paragraph (a)(5) provides special rules for a flow-through entity, complex trust, or estate to determine when such entity must treat a payment of U.S. source FDAP income that is also a withholdable payment as having been paid by such entity to its PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 12861 partners, owners, or beneficiaries (as applicable depending on the type of entity). (ii) Partnerships. An amount of U.S. source FDAP income that is also a withholdable payment is treated as being paid to a partner under rules similar to the rules prescribing when withholding is required for chapter 3 purposes as described in § 1.1441– 5(b)(2)(i)(A). (iii) Simple trusts. An amount of U.S. source FDAP income that is also a withholdable payment is treated as being paid to a beneficiary of a simple trust under rules similar to the rules prescribing when withholding is required for chapter 3 purposes as described in § 1.1441–5(b)(2)(ii). (iv) Complex trusts and estates. An amount of U.S. source FDAP income that is also a withholdable payment is treated as being paid to a beneficiary of a complex trust or estate under rules similar to the rules prescribing when withholding is required for chapter 3 purposes as described in § 1.1441– 5(b)(2)(iii). (v) Grantor trusts. If an amount of U.S. source FDAP income that is also a withholdable payment is paid to a grantor trust, a person treated as an owner of all or a portion of such trust is treated as having been paid such income by the trust at the time it is received by or credited to the trust or portion thereof. (vi) Special rule for an NWP or NWT. In the case of a partnership, simple trust, or complex trust that is an NWP or NWT, the rules described in paragraphs (a)(5)(ii) and (iii) of this section shall not apply, and U.S. source FDAP income that is also a withholdable payment is treated as being paid to the partner or beneficiary at the time the income is paid to the partnership or trust, respectively. (vii) [Reserved]. For further guidance, see § 1.1473–1(a)(5)(vii). (6) [Reserved]. For further guidance, see § 1.1473–1(a)(6). (7) [Reserved]. For further guidance, see § 1.1473–1(a)(7). (b) [Reserved]. For further guidance, see § 1.1473–1(b). (1) [Reserved]. For further guidance, see § 1.1473–1(b)(1) through (b)(1)(iii)(B). (2) [Reserved]. For further guidance, see § 1.1473–1(b)(2). (i) through (iv) [Reserved]. For further guidance, see § 1.1473–1(b)(2)(i) through (iv). (v) Interests owned or held by a related person. For purposes of determining whether a specified U.S. person is a substantial U.S. owner in a foreign entity described in paragraphs E:\FR\FM\06MRR3.SGM 06MRR3 12862 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (b)(2)(i) through (iv) of this section, if a specified U.S. person owns or holds, directly or indirectly, any interest in the foreign entity, that interest must be aggregated with any such interest in the foreign entity owned or held, directly or indirectly, by a related person. For purposes of the preceding sentence, a related person is a person or spouse of a person described in § 1.267(c)–1(a)(4), determined by reference to such specified U.S. person. (3) through (7) [Reserved]. For further guidance, see § 1.1473–1(b)(3) through (7). (c) through (f) [Reserved]. For further guidance, see § 1.1473–1(c) through (f). (g) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 18. Section 1.1474–1 is amended: ■ 1. By removing paragraphs (d)(1)(ii)(A)(1)(ix), (d)(3)(iii), (d)(4)(ii)(C), and (i)(1)(iv) through (v). ■ 2. By redesignating paragraphs (d)(1)(ii)(A)(1)(x) through (xii) as (d)(1)(ii)(A)(1)(ix) through (xi), and paragraphs (d)(3)(iv) through (x) as (d)(3)(iii) through (ix). ■ 3. By revising paragraphs (d)(1)(i), (d)(1)(ii)(A)(1)(viii) through (ix), (d)(1)(ii)(B)(1)(i), (d)(1)(ii)(B)(1)(vi) through (vii), (d)(1)(ii)(B)(1)(ix), (d)(2)(i), (d)(4)(i)(B), (d)(4)(i)(E), (d)(4)(ii)(B), (d)(4)(iii), (i)(1) introductory text, (i)(1)(i) through (iii), (i)(2) introductory text, and (i)(2)(iii). The additions and revisions read as follows: § 1.1474–1 Liability for withheld tax and withholding agent reporting. tkelley on DSK3SPTVN1PROD with RULES3 * * * * * (d) * * * (1) * * * (i) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(i). (ii) * * * (A) * * * (1) * * * (viii) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(A)(1)(viii). (ix) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(A)(1)(ix). * * * * * (B) * * * (1) * * * (i) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(B)(1)(i). * * * * * (vi) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(B)(1)(vi). (vii) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(B)(1)(vii). * * * * * (ix) [Reserved]. For further guidance, see § 1.1474–1T(d)(1)(ii)(B)(1)(ix). * * * * * VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (2) * * * (i) [Reserved]. For further guidance, see § 1.1474–1T(d)(2)(i). (A) [Reserved]. For further guidance, see § 1.1474–1T(d)(2)(i)(A). (B) [Reserved]. For further guidance, see § 1.1474–1T(d)(2)(i)(B). (C) [Reserved]. For further guidance, see § 1.1474–1T(d)(2)(i)(C). * * * * * (4) * * * (i) * * * (B) [Reserved]. For further guidance, see § 1.1474–1T(d)(4)(i)(B). * * * * * (E) [Reserved]. For further guidance, see § 1.1474–1T(d)(4)(i)(E). (ii) * * * (B) [Reserved]. For further guidance, see § 1.1474–1T(d)(4)(ii)(B). (C) [Reserved]. For further guidance, see § 1.1474–1T(d)(4)(ii)(C). (iii) * * * (A) [Reserved]. For further guidance, see § 1.1474–1T(d)(4)(iii) through (d)(4)(iii)(C). * * * * * (i) * * * (1) [Reserved]. For further guidance, see § 1.1474–1T(i)(1). (i) [Reserved]. For further guidance, see § 1.1474–1T(i)(1)(i). (ii) [Reserved]. For further guidance, see § 1.1474–1T(i)(1)(ii). (iii) [Reserved]. For further guidance, see § 1.1474–1T(i)(1)(iii) through (i)(1)(iii)(E). (2) [Reserved]. For further guidance, see § 1.1474–1T(i)(2). * * * * * (iii) [Reserved]. For further guidance, see § 1.1474–1T(i)(2)(iii). * * * * * ■ Par. 19. Section 1.1474–1T is added to read as follows: § 1.1474–1T Liability for withheld tax and withholding agent reporting (temporary). (a) through (c) [Reserved]. For further guidance, see § 1.1474–1(a) through (c)(3). (d) [Reserved]. For further guidance, see § 1.1474–1(d). (1) [Reserved]. For further guidance, see § 1.1474–1(d)(1). (i) In general. Except as otherwise provided in paragraph (d)(4) of this section or in the instructions to Form 1042–S, every withholding agent must file an information return on Form 1042–S, ‘‘Foreign Person’s U.S. Source Income Subject to Withholding,’’ (or such other form as the IRS may prescribe) to report to the IRS chapter 4 reportable amounts as described in paragraph (d)(2)(i) of this section that were paid to a recipient during the preceding calendar year. Except as PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 otherwise provided in paragraphs (d)(4)(ii)(B) (certain unknown recipients) and (d)(4)(i)(B) and (d)(4)(iii)(A) of this section (describing payees includable in reporting pools of a participating FFI or registered deemed-compliant FFI), a separate Form 1042–S must be filed with the IRS for each recipient of an amount subject to reporting under paragraph (d)(2)(i) of this section and for each separate type of payment made to a single recipient in accordance with paragraph (d)(4)(i) of this section. The Form 1042–S shall be prepared in such manner as the form and its accompanying instructions prescribe. One copy of the Form 1042– S shall be filed with the IRS on or before March 15 of the calendar year following the year in which the amount subject to reporting was paid, with a transmittal form as provided in the instructions to the form. Withholding certificates, certifications, documentary evidence, or other statements or documentation provided to a withholding agent are not required to be attached to the form. A copy of the Form 1042–S must be furnished to the recipient for whom the form is prepared (or any other person, as required under this paragraph or the instructions to the form) and to any intermediary or flow-through entity described in paragraph (d)(3)(vii) of this section on or before March 15 of the calendar year following the year in which the amount subject to reporting was paid. The withholding agent must retain a copy of each Form 1042–S for the period of limitations on assessment and collection applicable to the tax reportable on the Form 1042 to which the Form 1042–S relates (determined as set forth in paragraph (c)(1) of this section). See paragraph (d)(4)(iii) of this section for the additional reporting requirements of participating FFIs and deemed-compliant FFIs. (ii) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii). (A) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(A). (1) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(A)(1). (i) through (vii) [Reserved]. For further guidance, see § 1.1474– 1(d)(1)(ii)(A)(1)(i) through (vii). (viii) An excepted NFFE and passive NFFE that also is not a flow-through entity and that is not acting as an agent or intermediary with respect to the payment; (ix) A foreign person that is a partner or beneficiary in a flow-through entity that is a NFFE (looking through a partner or beneficiary that is a foreign intermediary or flow-through entity); E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (x) through (xi) [Reserved]. For further guidance, see § 1.1474– 1(d)(1)(ii)(A)(1)(x) through (xi). (2) through (3) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(A)(2) through (3). (B) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(B). (1) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(B)(1). (i) A certified deemed-compliant FFI that is an NQI, NWP, or NWT and that fails to provide its withholding agent with sufficient information to allocate the payment to its account holders and payees; (ii) through (v) [Reserved]. For further guidance, see § 1.1474– 1(d)(1)(ii)(B)(1)(ii) through (v). (vi) An account holder or payee of a nonparticipating FFI except to the extent described in paragraph (d)(1)(ii)(A)(1)(x) of this section for an exempt beneficial owner; (vii) Except as provided in paragraph (d)(1)(ii)(A)(1) of this section, an entity that is disregarded under § 301.7701– 2(c)(2) as an entity separate from its owner; (viii) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(B)(1)(viii). (ix) A passive NFFE or an excepted NFFE that is a flow-through entity or acts as an intermediary; (2) through (3) [Reserved]. For further guidance, see § 1.1474–1(d)(1)(ii)(B)(2) through (3). (2) [Reserved]. For further guidance, see § 1.1474–1(d)(2). (i) In general. Subject to paragraph (d)(2)(iii) of this section, the term chapter 4 reportable amount means each of the following amounts reportable on a Form 1042–S for purposes of chapter 4— (A) An amount of a withholdable payment that is subject to withholding under chapter 4 paid after June 30, 2014; (B) An amount of a withholdable payment of U.S. source FDAP income that is also reportable on Form 1042–S under § 1.1461–1(c)(2)(i); or (C) A foreign passthru payment subject to withholding under chapter 4. (ii) through (iii) [Reserved]. For further guidance, see § 1.1474–1(d)(2)(ii) through (iii). (3) [Reserved]. For further guidance, see § 1.1474–1(d)(3) through (d)(3)(x). (4) [Reserved]. For further guidance, see § 1.1474–1(d)(4). (i) [Reserved]. For further guidance, see § 1.1474–1(d)(4)(i). (A) [Reserved]. For further guidance, see § 1.1474–1(d)(4)(i)(A). (B) Payments to participating FFIs, deemed-compliant FFIs, and certain QIs. Except as otherwise provided in VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 this paragraph (d)(4)(i)(B), a U.S. withholding agent that makes a payment of a chapter 4 reportable amount to a participating FFI or deemed-compliant FFI that is an NQI, NWP, or NWT must complete a Form 1042–S treating such FFI as the recipient. With respect to a payment of U.S. source FDAP income made to a participating FFI or registered deemed-compliant FFI that is an NQI, NWP, or NWT or QI that elects to be withheld upon under section 1471(b)(3) and from whom the withholding agent receives an FFI withholding statement allocating the payment (or portion of the payment) to a chapter 4 withholding rate pool, a U.S. withholding agent must complete a separate Form 1042–S issued to the participating FFI, registered deemed-compliant FFI, or QI (as applicable) as the recipient with respect to each such pool identified on an FFI withholding statement, described in § 1.1471–3(c)(3)(iii)(B)(2). If, however, a participating FFI, deemed-compliant FFI, or QI (as applicable) has made an election under § 1.1471–4(b)(3)(iii), for the portion of the payment that the FFI allocates to each recalcitrant account holder that is subject to backup withholding under section 3406, the withholding agent must report on Form 1099 the amount of the payment and tax withheld in accordance with the form’s requirements and accompanying instructions. See § 1.1471–2(a)(2)(i) for the requirement of a withholding agent to withhold on payments of U.S. source FDAP income made to a participating FFI or registered deemed-compliant FFI that is an NQI, NWP, or NWT. See also § 1.1471–2(a)(2)(iii) in the case of payments made to a QI. See § 1.1461– 1(c)(4)(A) for the extent to which reporting is required under that section for U.S. source FDAP income that is reportable on Form 1042–S under chapter 3 and not subject to withholding under chapter 4, in which case the U.S. withholding agent must report in the manner described under § 1.1461– 1(c)(4)(ii) and paragraph (d)(4)(ii)(A) of this section. See paragraph (d)(4)(ii)(A) of this section for reporting rules applicable if participating FFIs or deemed-compliant FFIs provide specific payee information for reporting to the recipient of the payment for Form 1042– S reporting purposes. See paragraph (d)(4)(iii) of this section for the residual reporting responsibilities of an NQI, NWP, or NWT that is an FFI. (C) through (D) [Reserved]. For further guidance, see § 1.1474–1(d)(4)(i)(C) through (d)(4)(i)(D)(3). (E) Amounts paid to NFFEs. A U.S. withholding agent that makes payments of chapter 4 reportable amounts to an excepted or passive NFFE shall PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 12863 complete Forms 1042–S treating the NFFE as the recipient, except when the NFFE is a flow-through entity or acting as an intermediary and the partner or beneficiary is treated as the payee. In cases in which the chapter 4 reportable amount is also an amount of U.S. source FDAP income reportable on Form 1042– S (described in § 1.1441–2(a)), see also § 1.1461–1(c)(4)(A) for the extent to which reporting is required with respect to the partners, beneficiaries, or owners of such entities. (ii) [Reserved]. For further guidance, see § 1.1474–1(d)(4)(ii). (A) [Reserved]. For further guidance, see § 1.1474–1(d)(4)(ii)(A). (B) Nonparticipating FFI that is a flow-through entity or intermediary. If a withholding agent makes a payment of a chapter 4 reportable amount to a nonparticipating FFI that it is required to treat as an intermediary with regard to a payment or as a flow-through entity under rules described in § 1.1471– 3(c)(3)(iii), and except as otherwise provided in paragraph (d)(1)(ii)(A)(1)(x) of this section (relating to an exempt beneficial owner), the withholding agent must report the recipient of the payment as an unknown recipient and report the nonparticipating FFI as provided in paragraph (d)(4)(ii)(A) of this section for an entity not treated as a recipient. (C) Disregarded entities. If a U.S. withholding agent makes a payment to a disregarded entity and receives a valid withholding certificate or other documentary evidence from the person that is the single owner of such disregarded entity, the withholding agent must file a Form 1042–S treating the single owner as the recipient in accordance with the instructions to the Form 1042–S. (iii) Reporting by participating FFIs and deemed-compliant FFIs (including QIs, WPs, and WTs)—(A) In general. Except as otherwise provided in paragraph (d)(4)(iii)(B) (relating to NQIs, NWPs, NWTs, and FFIs electing under section 1471(b)(3)) and § 1.1471– 4(d)(2)(ii)(F) (relating to transitional payee-specific reporting for payments to nonparticipating FFIs), a participating FFI or deemed-compliant FFI (including a QI, WP, WT, or U.S. branch of a participating FFI that is not treated as a U.S. person) that makes a payment that is a chapter 4 reportable amount to a recalcitrant account holder or nonparticipating FFI must complete a Form 1042–S to report such payments. A participating FFI or registered deemed-compliant FFI (including a QI, WP, WT, or U.S. branch of a participating FFI that is not treated as a U.S. person) may report in pools consisting of its recalcitrant account E:\FR\FM\06MRR3.SGM 06MRR3 tkelley on DSK3SPTVN1PROD with RULES3 12864 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations holders and payees that are nonparticipating FFIs. With respect to recalcitrant account holders, the FFI may report in pools consisting of recalcitrant account holders within a particular status described in § 1.1471– 4(d)(6) and within a particular income code. Except as otherwise provided in § 1.1471–4(d)(2)(ii)(F), with respect to payees that are nonparticipating FFIs, the FFI may report in pools consisting of one or more nonparticipating FFIs that fall within a particular income code and within a particular status code described in the instructions to Form 1042–S. Alternatively, a participating FFI or registered deemed-compliant FFI (including a QI, WP, WT, or U.S. branch of a participating FFI that is not treated as a U.S. person) may (and a certified deemed-compliant FFI is required to) perform payee-specific reporting to report a chapter 4 reportable amount paid to a recalcitrant account holder or a nonparticipating FFI when withholding was applied (or should have applied) to the payment. (B) Special reporting requirements of participating FFIs, deemed-compliant FFIs, and FFIs that make an election under section 1471(b)(3). Except as otherwise provided in § 1.1471– 4(d)(2)(ii)(F), a participating FFI or deemed-compliant FFI that is an NQI, NWP, NWT (including a U.S. branch of a participating FFI that is not treated as a U.S. person), or an FFI that has made an election under section 1471(b)(3) and has provided sufficient information to its withholding agent to withhold and report the payment is not required to report the payment on Form 1042–S as described in paragraph (d)(4)(iii)(A) of this section if the payment is made to a nonparticipating FFI or recalcitrant account holder and its withholding agent has withheld the correct amount of tax on such payment and correctly reported the payment on a Form 1042– S. Such FFI is required to report a payment, however, when the FFI knows, or has reason to know, that less than the required amount has been withheld by the withholding agent on the payment or the withholding agent has not correctly reported the payment on Form 1042–S. In such case, the FFI must report on Form 1042–S to the extent required under paragraph (d)(4)(iii)(A) of this section. See, however, § 1.1471–4(d)(6) for the requirement to report certain aggregate information regarding accounts held by recalcitrant account holders on Form 8966, ‘‘FATCA Report,’’ regardless of whether withholdable payments are made to such accounts. (C) Reporting by a U.S. branch of a participating FFI or registered deemed- VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 compliant FFI treated as a U.S. person. A U.S. branch of a participating FFI or registered deemed-compliant FFI that is treated as a U.S. person must report amounts paid to recipients on Forms 1042–S in the same manner as a U.S. withholding agent under paragraph (d)(4)(i) of this section. (iv) through (vi) [Reserved]. For further guidance, see § 1.1474– 1(d)(4)(iv) through (vi). (e) through (h) [Reserved]. For further guidance, see § 1.1474–1(e) through (h). (i) [Reserved]. For further guidance, see § 1.1474–1(i). (1) Reporting by certain withholding agents with respect to ownerdocumented FFIs. (i) Beginning on July 1, 2014, if a withholding agent (other than an FFI reporting accounts held by ownerdocumented FFIs under § 1.1471–4(d)) makes a withholdable payment to an entity account holder or payee of an obligation and the withholding agent treats the entity as an ownerdocumented FFI under § 1.1471–3(d)(6), the withholding agent is required to report for July 1 through December 31, 2014, with respect to each specified U.S. person that has a direct or indirect debt or equity interest in such entity the information described in paragraph (i)(1)(iii) of this section. (ii) Beginning in calendar year 2015, if a withholding agent (other than an FFI reporting accounts held by ownerdocumented FFIs under § 1.1471–4(d)) makes during a calendar year a payment of a chapter 4 reportable amount to an entity account holder or payee of an obligation and the withholding agent treats the entity as an ownerdocumented FFI under § 1.1471–3(d)(6), the withholding agent is required to report for such calendar year with respect to each specified U.S. person that has a direct or indirect debt or equity interest in such entity the information described in paragraph (i)(1)(iii) of this section. (iii) The information that a withholding agent (other than an FFI reporting accounts held by ownerdocumented FFIs under § 1.1471–4(d)) is required to report under paragraphs (i)(1)(i) and (i)(1)(ii) of this section must be made on Form 8966 (or such other form as the IRS may prescribe) and filed on or before March 31 of the calendar year following the year in which the withholdable payment was made. The report must contain the following information— (A) The name of the ownerdocumented FFI; (B) The name, address, and TIN of each specified U.S. person identified in § 1.1471–3(d)(6)(iv)(A)(1) and (2); PO 00000 Frm 00054 Fmt 4701 Sfmt 4700 (C) For the period from July 1 through December 31, 2014, the total of all payments made to the ownerdocumented FFI and with respect to payments made after the 2014 calendar year the total of all payments made to the owner-documented FFI during the calendar year; (D) The account balance or value of the account held by the ownerdocumented FFI; and (E) Any other information required on Form 8966 and its accompanying instructions provided for purposes of such reporting. (2) Reporting by certain withholding agents with respect to U.S. owned foreign entities that are NFFEs. Beginning on July 1, 2014, in addition to the reporting on Form 1042–S required under paragraph (d)(4)(i)(E) of this section, a withholding agent (other than an FFI reporting accounts held by NFFEs under § 1.1471–4(d)) that receives information about any substantial U.S. owners of a NFFE that is not an excepted NFFE as defined in § 1.1472–1(c) shall file a report with the IRS for the period from July 1 through December 31, 2014, and in each subsequent calendar year with respect to any substantial U.S. owners of such NFFE. Such report must be made on Form 8966 (or such other form as the IRS may prescribe) and filed on or before March 31 of the calendar year following the year in which the withholdable payment was made. The IRS shall grant an automatic 90-day extension of time in which to file Form 8966. Form 8809, ‘‘Request for Extension of Time to File Information Returns,’’ (or such other form as the IRS may prescribe) must be used to request such extension of time and must be filed no later than the due date of Form 8966. Under certain hardship conditions, the IRS may grant an additional 90-day extension. A request for extension due to hardship must contain a statement of the reasons for requesting the extension and such other information as the form or instructions may require. The report must contain the following information— (i) through (ii) [Reserved]. For further guidance, see § 1.1474–1(i)(2)(i) through (ii). (iii) For the period from July 1, 2014 through December 31, 2014, the total of all payments made to the NFFE and, with respect to payments made after the 2014 calendar year, the total of all payments made to the NFFE during the calendar year; and (iv) [Reserved]. For further guidance, see § 1.1474–1(i)(2)(iv). (3) [Reserved]. For further guidance, see § 1.1474–1(i)(3). E:\FR\FM\06MRR3.SGM 06MRR3 Federal Register / Vol. 79, No. 44 / Thursday, March 6, 2014 / Rules and Regulations (j) [Reserved]. For further guidance, see § 1.1474–1(j). (k) Expiration date. The applicability of this section expires on February 28, 2017. ■ Par. 20. Section 1.1474–6 is amended by revising paragraph (b)(1), by redesignating paragraph (f) as (g), and by adding new paragraph (f) to read as follows: § 1.1474–6 Coordination of chapter 4 with other withholding provisions. * * * * * (b) * * * (1) [Reserved]. For further guidance, see § 1.1474–6T(b)(1). * * * * * (f) [Reserved]. For further guidance, see § 1.1474–6T(f). * * * * * ■ Par. 21. Section 1.1474–6T is added to read as follows: § 1.1474–6T Coordination of chapter 4 with other withholding provisions (temporary). tkelley on DSK3SPTVN1PROD with RULES3 (a) [Reserved]. For further guidance, see § 1.1474–6(a). VerDate Mar<15>2010 17:52 Mar 05, 2014 Jkt 232001 (b) [Reserved]. For further guidance, see § 1.1474–6(b). (1) In general. In the case of a withholdable payment that is both subject to withholding under chapter 4 and is an amount subject to withholding under § 1.1441–2(a), a withholding agent may credit the withholding applied under chapter 4 against its liability for any tax due under sections 1441, 1442, or 1443. See § 1.1474–1(c) and (d) for the income tax return and information return reporting requirements that apply in the case of a payment that is a withholdable payment subject to withholding under chapter 4 that is also an amount subject to withholding under § 1.1441–2(a). (2) through (3) [Reserved]. For further guidance, see § 1.1474–6(b)(2) through (3). (c) through (e) [Reserved]. For further guidance, see § 1.1474–6(c) through (e). (f) Coordination with section 3406. A participating FFI that makes a withholdable payment that is also a reportable payment (as defined in the PO 00000 Frm 00055 Fmt 4701 Sfmt 9990 12865 relevant sections of chapter 61) to a recalcitrant account holder that is a U.S. non-exempt recipient is not required to withhold under section 3406 if it withholds on the payment at a 30percent rate in accordance with its withholding obligations under chapter 4. See, however, § 1.1471–4(b)(3)(iii) for the election to withhold on recalcitrant account holders that are non-exempt U.S. recipients under section 3406 instead of withholding under chapter 4. (g) [Reserved]. For further guidance, see § 1.1474–6(g). (h) Expiration date. The applicability of this section expires on February 28, 2017. John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: February 14, 2014. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2014–03967 Filed 2–28–14; 4:15 pm] BILLING CODE 4830–01–P E:\FR\FM\06MRR3.SGM 06MRR3

Agencies

[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Rules and Regulations]
[Pages 12811-12865]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03967]



[[Page 12811]]

Vol. 79

Thursday,

No. 44

March 6, 2014

Part III





Department of the Treasury





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Internal Revenue Service





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26 CFR Part 1





Regulations Relating to Information Reporting by Foreign Financial 
Institutions and Withholding on Certain Payments to Foreign Financial 
Institutions and Other Foreign Entities; Final Rule

Federal Register / Vol. 79 , No. 44 / Thursday, March 6, 2014 / Rules 
and Regulations

[[Page 12812]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9657]
RIN 1545-BL73


Regulations Relating to Information Reporting by Foreign 
Financial Institutions and Withholding on Certain Payments to Foreign 
Financial Institutions and Other Foreign Entities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations under 
chapter 4 of Subtitle A (sections 1471 through 1474) of the Internal 
Revenue Code of 1986 (Code) regarding information reporting by foreign 
financial institutions (FFIs) with respect to U.S. accounts and 
withholding on certain payments to FFIs and other foreign entities. 
These regulations affect persons making certain U.S.-related payments 
to FFIs and other foreign entities and payments by FFIs to other 
persons. The text of the temporary regulations also serves as the text 
of the proposed regulations set forth in a cross-reference notice of 
proposed rulemaking (REG-130967-13) published in the Proposed Rules 
section in this issue of the Federal Register.

DATES: Effective date. These regulations are effective on March 6, 
2014.

FOR FURTHER INFORMATION CONTACT: Tara Ferris, Nancy Lee, Michael 
Kaercher, or Kamela Nelan at (202) 317-6942 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

I. In General

    This document contains amendments to the Income Tax Regulations 
(CFR part 1) under sections 1471 through 1474 of the Code (commonly 
known as the Foreign Account Tax Compliance Act, or FATCA). On March 
18, 2010, the Hiring Incentives to Restore Employment Act of 2010, 
Public Law 111-147 (the HIRE Act), added chapter 4 of Subtitle A 
(chapter 4), comprised of sections 1471 through 1474, to the Code. 
Chapter 4 generally requires U.S. withholding agents to withhold tax on 
certain payments to foreign financial institutions (FFIs) that do not 
agree to report certain information to the Internal Revenue Service 
(IRS) regarding their U.S. accounts, and on certain payments to certain 
nonfinancial foreign entities (NFFEs) that do not provide information 
on their substantial United States owners (substantial U.S. owners) to 
withholding agents. On January 28, 2013, final regulations (TD 9610) 
under chapter 4 were published in the Federal Register (78 FR 5874) 
and, on September 10, 2013, a correction to the final regulations was 
published in the Federal Register (78 FR 55202) (final regulations). 
The Treasury Department and the IRS received numerous comments in 
response to the final regulations.
    Following publication of the final regulations, the Treasury 
Department and the IRS also issued additional guidance under chapter 4. 
Notice 2013-43 (2013-31 I.R.B. 113) previews the revised timelines for 
implementation of the FATCA requirements (which are adopted by these 
temporary regulations) and provides additional guidance concerning the 
treatment of FFIs located in jurisdictions that have signed 
intergovernmental agreements for the implementation of FATCA (IGAs) but 
have not yet brought those IGAs into force. In particular, Notice 2013-
43 clarifies that a jurisdiction is treated as having in effect an IGA 
if the jurisdiction is listed on the Treasury Web site as a 
jurisdiction that is treated as having an IGA in effect. In general, 
the Treasury Department and the IRS intend to include on this list 
jurisdictions that have signed but have not yet brought into force an 
IGA. The list of jurisdictions that are treated as having an IGA in 
effect is available at the following address: http://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive.aspx. Notice 
2013-69 (2013-46 I.R.B. 503) further previews some of the changes that 
the Treasury Department and IRS intend to make to the final regulations 
and publishes a draft of the agreement that an FFI may enter into with 
the IRS in order to satisfy its obligations under section 1471(b) of 
the Code and be treated as a participating FFI (FFI agreement). Revenue 
Procedure 2014-13 (2014-3 I.R.B. 419) provides the final FFI agreement.

II. Regulatory Approach to Implementing Chapter 4

    Chapter 4 grants the Secretary of the Treasury broad regulatory 
authority to prescribe rules and procedures relating to the diligence, 
reporting and withholding obligations under FATCA. The Treasury 
Department and the IRS exercised this authority by publishing final 
regulations that provide specific operational guidelines for 
implementing FATCA in a manner consistent with its policy objectives. 
As described in the preamble to the final regulations, the final 
regulations implement the statute based on a risk-based approach that 
is intended to address policy considerations, eliminate unnecessary 
burdens, and to the extent possible, build on existing practices and 
obligations.
    Following publication of the final regulations, the Treasury 
Department and the IRS received unsolicited comments suggesting changes 
to or requesting clarification of certain rules in the final 
regulations. As a result of these comments, the Treasury Department and 
the IRS have continued to work with affected parties to develop rules 
that achieve an appropriate balance between fulfilling the important 
policy objectives of chapter 4 and minimizing the burdens imposed on 
stakeholders. As part of this process, the Treasury Department and the 
IRS have carefully considered comments received in response to the 
final regulations and have met with stakeholders. While many of these 
comments reiterate comments that were received and considered prior to 
the publication of the final regulations or suggest changes to the 
final regulations that are outside the scope of these temporary 
regulations, a number of comments proposed changes to the final 
regulations that the Treasury Department and the IRS believe warrant 
inclusion in these temporary regulations. The Treasury Department and 
the IRS will accept comments and engage with interested stakeholders in 
connection with finalizing these temporary regulations.

Explanation of Provisions

I. In General

    In response to comments and after further consideration, these 
temporary regulations revise and further clarify the final regulations. 
To this end, these temporary regulations take into account helpful 
comments received and provide additional detail and certainty regarding 
the scope of obligations imposed under chapter 4. In addition, these 
temporary regulations reflect changes made to the final regulations to 
coordinate the chapter 4 regulations with the temporary regulations 
published under chapters 3 and 61 and section 3406 of the Code. 
Additionally, these temporary regulations contain modifications to the 
final regulations to further harmonize them with the IGAs. Several of 
the changes made by these temporary regulations were previewed in 
Notice 2013-69, the draft FFI agreement, and

[[Page 12813]]

certain of the draft IRS forms released throughout 2013.
    The following sections provide a discussion of the additions and 
modifications made by the temporary regulations to the final 
regulations. To facilitate this discussion, the defined terms set forth 
in the temporary regulations are used throughout.

II. Comments and Changes to Sec.  1.1471-1--Scope of Chapter 4 and 
Definitions

    To address comments received and to provide further clarification, 
these temporary regulations modify certain definitions contained in the 
final regulations.

A. Direct Reporting NFFE, Sponsored Direct Reporting NFFE, and 
Sponsoring Entity

    Comments requested an election providing NFFEs with the ability to 
report information about their substantial U.S. owners directly to the 
IRS rather than to withholding agents. In response to these comments 
and as previewed in Notice 2013-69, these temporary regulations provide 
certain NFFEs with elections to be treated as direct reporting NFFEs or 
sponsored direct reporting NFFEs. A NFFE that is treated as a direct 
reporting NFFE or sponsored direct reporting NFFE shall be treated as 
an excepted NFFE. Accordingly, definitions have been added for a direct 
reporting NFFE and a sponsored direct reporting NFFE, and the 
definition of a sponsoring entity has been modified. Conforming changes 
have also been made throughout these temporary regulations to implement 
these changes.

B. Excepted NFFE

    These temporary regulations modify the definition of excepted NFFE 
such that excepted NFFEs include, among other things, a direct 
reporting NFFE and a sponsored direct reporting NFFE. In addition, to 
correct an oversight, the definition of excepted NFFE under these 
temporary regulations is further expanded to include a NFFE that is a 
qualified intermediary (QI), withholding foreign partnership (WP) or 
withholding foreign trust (WT).

C. Offshore Obligation and Offshore Account

    In response to comments stating that the definition of offshore 
obligation in the final regulations is unclear, and in order to 
harmonize chapters 4 and 61, these temporary regulations define 
offshore obligation by cross-reference to Sec.  1.6049-5(c)(1) (which 
now uses the term offshore obligation instead of offshore account). 
These temporary regulations also remove the definition of offshore 
account because it is included in the definition of offshore obligation 
under Sec.  1.6049-5(c)(1).

D. Pre-FATCA Form W-8

    These temporary regulations make a clarifying change to the 
definition of pre-FATCA Form W-8. The final regulations define pre-
FATCA Form W-8 as certain Forms W-8 that do not contain chapter 4 
statuses. However, the chapter 4 status of a non-U.S. individual filing 
a Form W-8 is the same as his or her chapter 3 status. Therefore, the 
definition in the final regulations could be interpreted to mean that 
any Form W-8 previously submitted by a non-U.S. individual could not be 
treated as a pre-FATCA Form W-8. These temporary regulations modify the 
definition of pre-FATCA Form W-8 to avoid this result.

E. Standardized Industry Coding System

    The final regulations define the term standardized industry code to 
mean a code that is part of a coding system that is used to classify 
account holders by business type for purposes other than tax purposes 
and that is implemented by the withholding agent by the later of 
January 1, 2012, or six months after the date the withholding agent is 
formed or organized. In response to comments, these temporary 
regulations remove the term standardized industry code and replace it 
with the term standardized industry coding system. The term 
standardized industry coding system in these temporary regulations is 
substantially similar to the term standardized industry code in the 
final regulations, except that it focuses on a coding system used by 
the withholding agent to classify account holders, rather than a 
specific code that is part of such a coding system. Additionally, and 
in response to comments, with respect to a preexisting obligation of an 
entity, the preexisting obligation documentary evidence rules have been 
liberalized by eliminating the requirement that the classification of 
the payee's status be recorded by the withholding agent by the later of 
January 1, 2012, or six months after the date the withholding agent is 
formed or organized.

F. Certain Foreign Insurance Companies Treated as U.S. Persons

    The final regulations treat a foreign insurance company that is not 
licensed to do business in any State and makes an election under 
section 953(d) as a foreign person. Comments requested that a foreign 
insurance company that has made an election under section 953(d) be 
treated as a U.S. person. A foreign insurance company that has made an 
election under section 953(d) is required to report on its U.S. income 
tax return the U.S. persons that own a direct or indirect interest in 
it. As previewed in Notice 2013-69, and in light of the existing 
reporting requirements applicable to these entities, the temporary 
regulations modify the definition of U.S. person to include a foreign 
insurance company that has made an election under section 953(d) and 
that either is not a specified insurance company or is a specified 
insurance company that is licensed to do business in any State. In such 
cases, the foreign insurance company will be required to continue to 
report on its owners in accordance with its election under section 
953(d). A foreign insurance company that has made an election under 
section 953(d) and that is a specified insurance company that is not 
licensed to do business in any State will continue to be treated as a 
foreign person for purposes of chapter 4.

G. Coordination of Definitions

    In response to comments requesting clarification and in order to 
coordinate the definitions in the final regulations with the 
definitions in chapters 3 and 61 and the FFI agreement, these temporary 
regulations add definitions of backup withholding, branch, chapter 4 
withholding rate pool, exempt recipient, IGA, non-exempt recipient, 
reportable payment, and reporting Model 2 FFI and modify the definition 
of a U.S. branch treated as a U.S. person. In addition, the definitions 
of financial institution, limited branch, limited FFI, and substantial 
U.S. owner are modified to ensure coordination between the FFI 
agreement and these temporary regulations.

H. Harmonization With IGAs

    These temporary regulations modify the definition of nonreporting 
IGA FFI to include (in addition to an FFI that is identified or treated 
as a nonreporting financial institution pursuant to a Model 1 or Model 
2 IGA that is not a registered deemed-compliant FFI) an FFI that is a 
resident of, located in, or established in a Model 1 or Model 2 IGA 
jurisdiction, as the context requires, and that meets the requirements 
for certified deemed-compliant FFI status under the temporary 
regulations. Certain definitions (including the definition of 
retirement plan under Sec.  1.1471-6(f)) are also modified to further 
harmonize these temporary regulations and the IGAs.

[[Page 12814]]

III. Comments and Changes to Sec.  1.1471-2--Requirement To Deduct and 
Withhold Tax on Withholdable Payments to Certain FFIs

A. Grandfathered Obligations--Definitions--Material Modification

    Comments indicated that outstanding life insurance contracts often 
contain a provision permitting the substitution of an insured and, as a 
result, cannot be a grandfathered obligation under the final 
regulations. Because such provisions are prevalent in existing life 
insurance contracts, the Treasury Department and the IRS have 
determined that life insurance contracts that have such a provision 
should be eligible for grandfathered status until the provision is 
invoked, but that any change or substitution of the insured under the 
contract should be treated as a material modification such that 
grandfathered status would no longer apply. These temporary regulations 
modify the final regulations accordingly.

B. Grandfathered Obligations--Determination by Withholding Agent of 
Grandfathered Treatment

    The final regulations provide that a withholding agent is required 
to treat a modification of an obligation as material if the withholding 
agent knows or has reason to know that a material modification has 
occurred. The Treasury Department and the IRS received comments stating 
that it is difficult for a withholding agent to determine whether there 
has been a material modification of a grandfathered obligation absent a 
disclosure from the issuer of the obligation, and therefore that the 
receipt of such a disclosure should be the only instance in which a 
withholding agent is required to treat a modification of an obligation 
as material. In response to these comments, the temporary regulations 
modify the final regulations to provide that a withholding agent, other 
than the issuer of the obligation (or an agent of the issuer), is 
required to treat a modification of an obligation as material only if 
the withholding agent has actual knowledge that a material modification 
has occurred. One example of an event that will cause a withholding 
agent to have actual knowledge of a material modification is if the 
withholding agent receives a disclosure indicating that there has been 
or will be a material modification to the obligation.

IV. Comments and Changes to Sec.  1.1471-3--Identification of Payee

A. Payee Defined

1. Exceptions--U.S. Intermediary or Agent of a Foreign Person
    Comments requested that, in cases in which a withholding agent 
makes a withholdable payment to a U.S. insurance broker that is acting 
as an intermediary for or agent of a foreign insurer, the withholding 
agent be allowed to treat the U.S. insurance broker as the payee unless 
the withholding agent has reason to know that the U.S. insurance broker 
will not satisfy its withholding obligations. These temporary 
regulations modify the final regulations to adopt this comment.
2. Exceptions--U.S. Branch of Certain Foreign Banks or Foreign 
Insurance Companies
    A payment made to a U.S. branch of a participating FFI or a 
registered deemed-compliant FFI may be treated as a payment made to a 
U.S. person if the branch is treated as a U.S. person for purposes of 
withholding under chapter 4. The final regulations inadvertently omit a 
cross-reference to the regulations containing the requirements of U.S. 
branches to report information regarding certain U.S. owners of owner-
documented FFIs and passive NFFEs. These temporary regulations add a 
cross-reference to Sec.  1.1474-1(i)(1) and (2).

B. Determination of Payee's Status--Determination of Whether the 
Payment Is Made to a QI, WP, or WT

    In order to harmonize the rules in chapter 4 with those in chapters 
3 and 61, these temporary regulations clarify that, with respect to a 
withholding agent's determination of whether a payment is made to a QI, 
WP, or WT, a Form W-8IMY, ``Certificate of Foreign Intermediary, 
Foreign Flow-Through Entity, or Certain U.S. Branches for United States 
Tax Withholding,'' provided by such entity must contain the entity's 
QI-EIN, WP-EIN, or WT-EIN (as applicable). In addition, QIs, WPs, and 
WTs that have a GIIN must provide both a QI-EIN, QP-EIN, or WT-EIN and 
the GIIN to a withholding agent on the Form W-8IMY.

C. Rules for Reliably Associating a Payment With a Withholding 
Certificate or Other Appropriate Documentation

1. Requirements for Validity of Certificates--Withholding Certificate 
of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W-8IMY)--
In General
    These temporary regulations clarify that, when a participating FFI 
or a registered deemed-compliant FFI has a branch (including a 
disregarded entity of the FFI) that both acts as an intermediary and is 
located outside of the FFI's country of residence, the GIIN of the 
branch (or disregarded entity) must be disclosed on the withholding 
certificate. This change provides more detail on the use of GIINs 
issued to branches or disregarded entities of an FFI and that are used, 
in part, to identify an FFI to withholding agents.
2. Requirements for Validity of Certificates--Withholding Certificate 
of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W-8IMY)--
Withholding Statement--Special Requirements for an FFI Withholding 
Statement
    Comments requested additional clarification to the final 
regulations concerning the requirements of an FFI withholding 
statement, specifically with regard to the use of a chapter 4 
withholding rate pool identified on an FFI withholding statement to 
allocate a withholdable payment (or portion of a withholdable payment) 
to persons included within the chapter 4 withholding rate pool. Some of 
these clarifications have already been previewed in the draft FFI 
agreement, published in Notice 2013-69, and the final FFI agreement, 
published in Rev. Proc. 2014-13. These temporary regulations provide 
further clarification of FFI withholding statement requirements, 
including rules on when a chapter 4 withholding rate pool may be used 
by an FFI to allocate withholdable payments to a class of persons 
within a particular type of chapter 4 withholding rate pool. For 
example, if a participating FFI (including a reporting Model 2 FFI) 
that is a non-U.S. payor receives a withholdable payment on behalf of 
an account holder of a U.S. account, the participating FFI may include 
the account holder in a chapter 4 withholding rate pool of U.S. payees 
provided on an FFI withholding statement to the withholding agent to 
allocate the payment (or portion thereof) to the U.S. payee pool when 
the participating FFI reports the account holder under Sec.  1.1471-
4(d)(3) (Form

[[Page 12815]]

8966, ``FATCA Report,'' reporting) or Sec.  1.1471-4(d)(5) (election to 
report on Form 1099). As a result, the participating FFI need not 
provide payee specific information to the withholding agent with 
respect to the account holder, even if such information would typically 
be required under chapter 61, because it will be reported to the IRS 
under chapter 4.
    Additionally, reporting Model 1 FFIs and reporting Model 2 FFIs 
(without regard to whether such FFIs are U.S. or non-U.S. payors) may 
include certain recalcitrant account holders in a chapter 4 withholding 
rate pool of U.S. payees when such payments are not subject to 
withholding under chapters 3 or 4 or to backup withholding under 
section 3406 (for example, presumed U.S. non-exempt recipients). This 
rule was added to provide coordination between the various reporting 
regimes. For example, a reporting Model 2 FFI may include an account 
holder of a non-consenting U.S. account in a chapter 4 withholding rate 
pool of U.S. payees with respect to a withholdable payment that is not 
subject to withholding under chapters 3 or 4 or to backup withholding 
under section 3406 when the FFI reports the account holder as described 
in Sec.  1.1471-4(d)(6) for the year in which the payment is made.
    Finally, in order to clarify potential ambiguities, and as 
previewed in the draft and final FFI agreement, these temporary 
regulations provide that an FFI withholding statement should indicate 
the portion of the payment allocated to a pool of recalcitrant account 
holders that hold dormant accounts for which the FFI (and not the 
withholding agent) will withhold in escrow under the procedures 
described in Sec.  1.1471-4(b)(6). Additionally, a participating FFI 
that elects to apply backup withholding under Sec.  1.1471-4(b)(3)(iii) 
to a withholdable payment that is also a reportable payment (as 
described under chapter 61) must also indicate the portion of the 
payment allocated to each recalcitrant account holder subject to backup 
withholding under section 3406 and report such payment to the IRS on 
Form 1099. A participating FFI will not be able to make the election to 
backup withhold under Sec.  1.1471-4(b)(3)(iii) unless it is able to 
report on the payment and tax withheld consistent with the rules under 
chapter 61 and section 3406.
3. Requirements for Validity of Certificates--Withholding Certificate 
of an Intermediary, Flow-Through Entity, or U.S. Branch (Form W-8IMY)--
Withholding Statement--Special Requirements for a Chapter 4 Withholding 
Statement and Exempt Beneficial Owner Withholding Statement
    An intermediary providing a withholding certificate for a 
withholdable payment under chapter 4 may also need to provide 
information under chapter 3 or chapter 61 if those chapters also apply 
to the payment the intermediary receives. These temporary regulations 
modify the final regulations to coordinate with chapters 3 and 61 by 
providing cross-references to the regulations under those chapters to 
clarify the information required to be included on a withholding 
statement when a withholdable payment is also reportable under chapters 
3 or 61.
4. Applicable Rules for Withholding Certificates, Written Statements, 
and Documentary Evidence--Period of Validity
    Under chapter 4, withholding certificates are valid for three 
years, unless an exception permits indefinite validity (until a change 
in circumstances occurs). Beneficial owner withholding certificates 
provided by certain entities qualify for indefinite validity if the 
certificate is furnished with documentary evidence establishing the 
entity's foreign status. Comments requested that section 501(c) 
entities be excluded from the requirement to furnish documentary 
evidence of foreign status as it is an undue burden on such entities. 
The Treasury Department and the IRS agree that it is appropriate to 
exclude these entities from the requirement to furnish documentary 
evidence of foreign status. In response to these comments and to 
coordinate with the rules under chapter 3, these temporary regulations 
cross-reference the rules for indefinite validity of withholding 
certificates for section 501(c) entities in Sec.  1.1441-
1(e)(4)(ii)(B).
5. Applicable Rules for Withholding Certificates, Written Statements, 
and Documentary Evidence--Electronic Transmission of Withholding 
Certificate, Written Statement, and Documentary Evidence
    The final regulations provide that a withholding agent may accept 
withholding certificates, written statements, and documentary evidence 
supporting a payee's claim of chapter 4 status electronically if the 
agent is able to verify the identity of the sender as the person named 
on the form. Comments requested that the verification rules be modified 
or eliminated to reduce the burden on the withholding agent. The 
Treasury Department and the IRS agree with the comments, but have 
determined that the electronic transmission requirements under chapter 
4 should match those to be revised under chapter 3 in consideration of 
these comments. Therefore, these temporary regulations modify the final 
regulations by cross-referencing the electronic submission rules in 
Sec.  1.1441-1(e)(4)(iv)(C) which have been modified to adopt the 
change in a separate regulations package. These temporary regulations 
also make similar conforming changes to the final regulations with 
respect to requirements for an intermediary to electronically submit a 
withholding statement with a withholding certificate to a withholding 
agent.
6. Applicable Rules for Withholding Certificates, Written Statements, 
and Documentary Evidence--Acceptable Substitute Withholding 
Certificate--Non-IRS Form for Individuals
    In general, a withholding agent may substitute its own form for an 
official Form W-8 if the substitute form contains provisions that are 
substantially similar to the official form. The final regulations 
provide that if a substitute form is used in place of a W-8BEN for 
individuals, the form must contain, among other things, the 
individual's city and country of birth. The Treasury Department and the 
IRS received comments indicating that the inclusion of city of birth on 
this form would impose an undue burden on withholding agents. In 
response to comments, these temporary regulations remove the city of 
birth requirement. After further consideration, however, the temporary 
regulations require that the substitute form must contain the 
individual's date of birth, without regard to whether a foreign tax 
identification number is provided.
7. Documentation Furnished on Account-by-Account Basis Unless Exception 
Provided for Sharing Documentation Within Expanded Affiliated Group--
Preexisting Account
    The Treasury Department and the IRS received comments requesting 
that, for preexisting accounts, a withholding agent be allowed to rely 
on documentation held at a branch of the withholding agent or a branch 
of another expanded affiliated group member even if the withholding 
agent does not treat the accounts as consolidated obligations. The 
comments

[[Page 12816]]

indicated that, in certain cases, the requirement to treat the accounts 
as consolidated obligations in order to share documentation is too 
burdensome. These temporary regulations modify the final regulations to 
allow a withholding agent, with respect to a preexisting account that 
it maintains, to rely on documentation furnished by a payee for a 
preexisting account held at another branch of the withholding agent or 
a branch of another expanded affiliated group member solely to 
determine the chapter 4 status of the account holder if: (i) The 
withholding agent obtains and reviews copies of such documentation 
supporting the chapter 4 status of the payee and (ii) the withholding 
agent has no reason to know that, when the documentation is obtained by 
the withholding agent, the documentation is unreliable or incorrect.

D. Documentation Requirements To Establish Payee's Chapter 4 Status

1. Reliance on Pre-FATCA Form W-8
    The final regulations generally allow the withholding agent to rely 
on a pre-FATCA Form W-8 for international organizations. In order to 
clarify a potential ambiguity and to conform with chapter 3, these 
temporary regulations provide that reliance on a pre-FATCA Form W-8 is 
limited to international organizations as defined under chapter 3 and 
under section 7701(a)(18).
2. Identification of U.S. Persons--In General
    Under chapter 4, a withholding agent must treat certain payees as 
U.S. persons. In order to clarify a potential ambiguity, these 
temporary regulations provide that foreign branches of U.S. persons and 
FFIs that have elected to be treated as U.S. persons under section 
953(d) (despite the fact that such FFIs may not be U.S. persons for 
other purposes of chapter 4) should be treated as U.S. persons by a 
withholding agent if the withholding agent has a valid Form W-9, 
``Request for Taxpayer Identification Number and Certification,'' from 
the payee or is required to presume that the payee is a U.S. person. 
This reduces burden because FFIs that have elected to be treated as 
U.S. persons under section 953(d) are generally treated as U.S. persons 
under chapter 3 and would need to provide a Form W-9 in connection with 
payments subject to chapter 3 withholding and reporting.
3. Identification of U.S. Persons--Preexisting Obligations
    The final regulations provide that a withholding agent (other than 
a participating FFI or registered deemed-compliant FFI) that makes a 
payment with respect to a preexisting obligation may treat a payee as a 
U.S. person if it previously reviewed a Form W-9 or other documentation 
that established that the payee is a U.S. person and established that 
the payee is an exempt recipient for purposes of chapter 61. Comments 
from U.S. withholding agents indicated that the burden of documenting 
such payees that have previously been classified as U.S. persons is 
both significant and disproportionate to the benefits of obtaining 
documentation of U.S. status. In response to these comments, these 
temporary regulations modify the final regulations to allow withholding 
agents (other than a participating FFI or registered deemed-compliant 
FFI) to treat the payee of a payment with respect to a preexisting 
obligation as a U.S. person if the withholding agent has previously 
classified the payee as a U.S. person for purposes of chapters 3 or 61 
and established (through documentation or the application of the rules 
in Sec.  1.6049-4(c)(1)(ii)) that the payee is an exempt recipient for 
purposes of chapter 61.
4. Identification of Participating FFIs and Registered Deemed-Compliant 
FFIs
    The final regulations generally provide that a withholding agent 
may only treat a payee as a participating FFI or registered deemed-
compliant FFI if the withholding agent receives an appropriate 
withholding certificate and a GIIN. The final regulations also provide 
a transitional rule for when withholding agents may treat payments made 
prior to January 1, 2017, with respect to a preexisting obligation, as 
made to a payee that is a participating FFI or registered deemed-
compliant FFI. Under this rule the payee only needs to provide the 
withholding agent with its GIIN (which the withholding agent must 
verify) and indicate whether the FFI is a participating FFI or a 
registered deemed-compliant FFI. After further consideration and to 
coordinate with the rules under chapters 3 and 61, these temporary 
regulations modify the final regulations to provide that in such cases 
the payee must also have provided the withholding agent with a pre-
FATCA Form W-8, as payees that receive U.S. source FDAP income would 
have already been required to provide a withholding certificate to a 
withholding agent. These temporary regulations further clarify the 
final regulations such that, when a participating FFI or a registered 
deemed-compliant FFI has a branch (including a disregarded entity of 
the FFI) that is located outside of the FFI's country of residence and 
receives the payment, the GIIN of the branch (or disregarded entity) 
must be disclosed on the withholding certificate.
 5. Identification of Excepted NFFEs--Identifying a Direct Reporting 
NFFE, Identifying a Sponsored Direct Reporting NFFE, and Identification 
of an Excepted Inter-Affiliate FFI
    These temporary regulations provide that direct reporting NFFEs and 
sponsored direct reporting NFFEs qualify as excepted NFFEs. Consistent 
with this change, these temporary regulations add to the final 
regulations identification rules with respect to direct reporting NFFEs 
and sponsored direct reporting NFFEs. Additionally, under the final 
regulations, a financial institution does not include certain foreign 
entities that are considered excepted inter-affiliate FFIs. One of the 
requirements for such an entity is that it does not receive payments 
from, or hold an account with, a withholding agent other than a member 
of its expanded affiliated group. Comments requested that such entities 
be permitted to hold bank accounts with certain non-U.S. persons 
outside of the expanded affiliated group. The temporary regulations 
modify the final regulations with respect to an excepted inter-
affiliate FFI to allow such FFIs to hold depository accounts to pay for 
expenses in the country in which the FFI is operating and that are 
maintained within the same country. Accordingly, conforming changes 
have also been made by these temporary regulations to add 
identification rules with respect to an excepted inter-affiliate FFI. 
An identification rule was not necessary under the final regulations 
because an excepted inter-affiliate FFI was not allowed to hold an 
account with a withholding agent other than a member of its expanded 
affiliated group.

E. Standards of Knowledge

1. GIIN Verification
    The final regulations provide that, under certain circumstances, a 
withholding agent has reason to know that a payee is not a financial 
institution. To clarify a potential ambiguity, these temporary 
regulations provide that a withholding agent has reason to know that a 
withholdable payment is being made to a limited branch of a 
participating or registered deemed-compliant FFI when it is directed to 
make payment to an address of the FFI in a jurisdiction other than the 
address of the participating FFI or registered deemed-compliant FFI (or 
branch of such FFI) that is identified as

[[Page 12817]]

the FFI (or branch of such FFI) that is supposed to receive the 
payment. These temporary regulations further provide special rules 
regarding a direct reporting NFFE and a sponsored direct reporting 
NFFE's claim of chapter 4 status.
2. Reason to Know
    Under chapter 4, a withholding agent may not rely on an FFI's claim 
of chapter 4 status if the withholding agent has reason to know that 
such claim is unreliable or incorrect. Under the final regulations, the 
withholding agent is required to review information used to satisfy AML 
due diligence requirements in determining whether a claim of chapter 4 
status was unreliable or incorrect. In response to comments, these 
temporary regulations modify the final regulations such that when a 
withholding agent has classified a person by business type for AML due 
diligence or another regulatory purpose (other than for a tax purpose) 
that requires the withholding agent to periodically monitor or update 
the classification, the withholding agent will have reason to know that 
information contained in its account files conflicts with the person's 
claim of chapter 4 status only if the classification recorded by the 
withholding agent is inconsistent with the chapter 4 status claimed. 
Comments also requested additional time to review the information 
collected for AML due diligence because it is typically gathered and 
stored by a different department or division of the withholding agent 
and is not linked to the customers' account files. These temporary 
regulations adopt this comment and allow 30 days to review information 
collected for AML due diligence for new accounts.
    The final regulations also provide due diligence requirements with 
respect to U.S. indicia of account holders for payments made with 
respect to preexisting obligations. After further consideration, the 
temporary regulations modify these provisions such that the U.S. 
indicia-based due diligence requirements generally do not apply to a 
withholding agent that has previously documented an account for 
purposes of chapter 3 or chapter 61. However, under the temporary 
regulations, a withholding agent that applies the limits on reason to 
know described in chapter 3 or chapter 61 must review for U.S. indicia 
any additional documentation upon which the withholding agent is 
relying to determine the chapter 4 status of the person. A cross-
reference in Sec.  1.1471-3(e)(4)(viii)(A)(4) has also been corrected.

F. Presumptions Regarding Chapter 4 Status of the Person Receiving the 
Payment in the Absence of Documentation

    The Treasury Department and the IRS intend for the chapter 4 
presumption rules for determining the status of a person as an 
individual or an entity and as U.S. or foreign to be identical to the 
presumption rules in chapters 3 and 61. To ensure coordination of these 
rules, these temporary regulations modify the final regulations by 
cross-referencing the presumption rules under chapter 3, rather than 
restating the rules in detail. This change ensures coordination between 
the presumption rules in chapter 3 and chapter 4 in the event that the 
chapter 3 presumption rules are modified.

V. Comments and Changes to Sec.  1.1471-4--FFI Agreement

A. Withholding Requirements

1. Satisfaction of Withholding Requirements--Election To Withhold Under 
Section 3406
    As announced in Notice 2013-69, these temporary regulations modify 
the final regulations to coordinate withholding under chapter 4 and 
backup withholding under section 3406. Under Sec.  1.1474-6(f), a 
participating FFI that makes a withholdable payment that is also a 
reportable payment to a recalcitrant account holder is not required to 
apply backup withholding under section 3406 if it withholds on the 
payment under chapter 4. A reportable payment that is not subject to 
withholding under chapter 4 remains subject to backup withholding under 
section 3406. Additionally, these temporary regulations provide under 
Sec.  1.1471-4(b)(3)(iii) that a participating FFI may satisfy its 
chapter 4 withholding obligations for a withholdable payment that is a 
reportable payment made to a recalcitrant account holder that is a U.S. 
non-exempt recipient subject to backup withholding if the participating 
FFI elects for backup withholding under section 3406 to apply (rather 
than withholding under chapter 4 with regard to such payees). A 
participating FFI will not be able to make the election to backup 
withhold under Sec.  1.1471-4(b)(3)(iii) unless it is able to report on 
the payment and tax withheld consistent with the rules under chapter 61 
and section 3406.
2. Special Rule for Dormant Accounts
    With respect to dormant accounts of recalcitrant account holders, 
the final regulations permit a participating FFI to escrow amounts 
withheld under chapter 4 rather than deposit such amounts with the IRS. 
To coordinate with the chapter 3 and 61 regulations which would have 
required such amounts to be withheld upon, the temporary regulations 
limit this allowance to amounts not otherwise subject to withholding 
under chapter 3 or backup withholding under section 3406. In addition, 
a participating FFI may not delegate its responsibility to escrow the 
withheld tax to the withholding agent from which it receives the 
payment. These modifications are intended to harmonize the treatment of 
such escrowed amounts under chapters 3 and 4 and are consistent with 
the provisions of the FFI agreement.

B. Due Diligence for the Identification and Documentation of Account 
Holders and Payees

1. Identification and Documentation Procedure for Preexisting 
Individual Accounts--Specific Identification and Documentation 
Procedures for Preexisting Individual Accounts--U.S. Indicia and 
Relevant Documentation Rules--Documentation to be Retained Upon 
Identifying U.S. Indicia--Standing Instructions to Pay Amounts
    The final regulations provide a cure for standing instructions to 
pay amounts to an account maintained in the United States for an 
account holder that differs from the cure provided under chapter 3. 
These temporary regulations modify the final regulations to provide an 
option to follow the chapter 3 rules by adding a cross-reference to 
Sec.  1.1441-7(b)(12).
2. Identification and Documentation Procedure for Preexisting 
Individual Accounts--Specific Identification and Documentation 
Procedures for Preexisting Individual Accounts--Exception for 
Preexisting Individual Accounts Previously Documented as Held by 
Foreign Individuals
    The final regulations provide that a participating FFI that has 
previously established an account holder's status as foreign in order 
to fulfill its reporting obligations as a U.S. payor under chapter 61 
is not required to perform an electronic search or enhanced review. 
Comments requested that this exception be extended to the 
identification and documentation performed by an agent of a 
participating FFI that is a U.S. payor. To address these comments and 
to further coordinate between the IGAs and the regulations, these 
temporary regulations modify the final regulations to adopt this 
comment.

[[Page 12818]]

C. Account Reporting

1. Reporting Requirements In General--Financial Institution Required to 
Report an Account--Special Reporting of Account Holders of Territory 
Financial Institutions
    Section 1.1471-4(d)(2)(ii)(B) provides a special reporting rule for 
participating FFIs that maintain an account held by a territory 
financial institution acting as an intermediary. If such territory 
financial institution agrees to be treated as a U.S. person, the 
participating FFI is not required to report under Sec.  1.1471-4 with 
respect to the account holders of the territory financial institution 
because such entities will report directly to the IRS. However, if the 
territory financial institution does not agree to be treated as a U.S. 
person, the final regulations require the participating FFI to report 
under Sec.  1.1471-4 with respect to each account holder of the 
territory financial institution that receives a withholdable payment 
(or portion thereof) and that is a specified U.S. person or substantial 
U.S. owner of a foreign entity (indirect account holders). The final 
regulations are ambiguous about how a participating FFI could report on 
these indirect account holders. To provide more clarity with respect to 
the reporting requirements and to provide additional flexibility, the 
temporary regulations give participating FFIs the option of reporting 
on these indirect account holders on either Form 8966 or Form 1099. 
Additionally, these temporary regulations clarify the scope of 
information that must be reported by a participating FFI on Form 8966 
or Form 1099 with respect to account holders of a territory financial 
institution that has not elected to be treated as a U.S. person.
2. Reporting Requirements In General--Financial Institution Required to 
Report an Account--Requirement To Identify the GIIN of a Branch That 
Maintains an Account
    The final regulations provide that a participating FFI may elect to 
comply with its obligation to report under Sec.  1.1471-4(d)(3) or 
Sec.  1.1471-4(d)(5) on a branch-by-branch basis. After further 
consideration, the temporary regulations provide that a participating 
FFI may report under Sec.  1.1471-4(d)(3) or Sec.  1.1471-4(d)(5) with 
respect to all of the participating FFI's U.S. accounts and 
recalcitrant accounts, or separately with respect to any clearly 
identified group of accounts (such as by line of business or the 
location of where the account is maintained). Consistent with the final 
regulations, a participating FFI must include the GIIN assigned to the 
participating FFI or its branch (including a disregarded entity of the 
FFI), as applicable, to identify the jurisdiction of the FFI or branch 
(or disregarded entity) that maintains the accounts subject to 
reporting.
3. Reporting Requirements In General--Financial Institution Required To 
Report an Account--Reporting by Participating FFIs and Registered 
Deemed-Compliant FFIs (Including QIs, WPs, WTs, and Certain U.S. 
Branches Not Treated as U.S. Persons) for Accounts of Nonparticipating 
FFIs (Transitional)
    The final regulations provide transitional reporting requirements 
for a participating FFI or registered deemed-compliant FFI making a 
payment of a foreign reportable amount to a nonparticipating FFI. Under 
Sec.  1.1474-1(d)(4)(iii)(C) of the final regulations, a participating 
FFI is required to report the aggregate amount of foreign reportable 
amounts paid to each payee that is a nonparticipating FFI, even when 
such payments are not associated with a financial account. The final 
regulations define foreign reportable amount as a payment of FDAP 
income that would be a withholdable payment if paid by a U.S. person. 
Comments requested changes and clarification with respect to the 
transitional rule because it was unclear regarding the scope of 
payments subject to reporting and because of the cost of modifying 
systems to comply with this reporting rule. These temporary regulations 
continue to provide transitional reporting rules, but, consistent with 
Notice 2013-69, modify it to address these comments. First, the 
temporary regulations clarify that reporting will be required only with 
respect to nonparticipating FFIs that maintain an account with the 
participating FFI. Second, these temporary regulations modify the 
definition of foreign reportable amount to mean foreign source payments 
as described in Sec.  1.1471-4(d)(4)(iv) paid to or with respect to 
each such account. Third, the temporary regulations provide that 
instead of reporting only foreign reportable amounts paid to such 
nonparticipating FFIs, a participating FFI may report all payments made 
with respect to the account (not only foreign reportable amounts). 
Fourth, the temporary regulations provide that, when a participating 
FFI is prohibited under domestic law from reporting on a specific payee 
basis without consent from the nonparticipating FFI and the 
participating FFI has been unable to obtain such consent, it may report 
the aggregate number of accounts held by all such non-consenting 
nonparticipating FFIs and the aggregate amount of foreign reportable 
amounts paid with respect to such accounts. These temporary regulations 
also modify the final regulations to provide that the information 
required under the transitional reporting rule will be provided on Form 
8966, not Form 1042-S, ``Foreign Person's U.S. Source Income Subject to 
Withholding,'' and accordingly move the transitional rule to Sec.  
1.1471-4(d)(2)(ii)(F) and delete a residual paragraph in Sec.  1.1474-
1(d)(3)(iii) and renumber (d)(3)(iv) through (d)(3)(x). These changes 
were previously announced in Notice 2013-69 and are also included in 
the final FFI agreement. Finally, the temporary regulations require 
participating FFIs to retain account statements for accounts maintained 
for such nonparticipating FFIs.
4. Reporting Requirements In General--Special U.S. Account Reporting 
Rules for U.S. Payors--Special Reporting Rule for U.S. Payors Other 
Than U.S. Branches
    The final regulations provide that a participating FFI that is a 
U.S. payor (other than a U.S. branch) is treated as satisfying its 
chapter 4 reporting obligations with respect to accounts that it is 
required to treat as U.S. accounts or accounts held by owner-documented 
FFIs if it reports the information required under chapter 61 and the 
information described under Sec.  1.1471-4(d)(5)(ii) (requiring 
additional information on accounts held by specified U.S. persons, U.S. 
owned foreign entities that are NFFEs, and owner-documented FFIs). In 
response to comments, the temporary regulations modify the final 
regulations to allow a participating FFI that is a U.S. payor to 
satisfy its chapter 4 reporting obligations with respect to its U.S. 
accounts or accounts held by owner-documented FFIs either by reporting 
the information described in chapter 61 and Sec.  1.1471-4(d)(5)(ii) or 
(iii) (the information reporting would be made on Form 1099 for U.S. 
accounts that are not U.S. owned NFFEs), as provided in the final 
regulations, or by reporting the information described in Sec.  1.1471-
4(d)(3)(ii), (d)(3)(iii) or (d)(3)(iv) (the information reporting would 
be made on Form 8966). A participating FFI that reports the information 
described in Sec.  1.1471-4(d)(3)(ii), (d)(3)(iii) or (d)(3)(iv) and 
that is required to report payments under chapter 61 is not relieved of 
that obligation.

[[Page 12819]]

5. Reporting Requirements in General--Special U.S. Account Reporting 
Rules for U.S. Payors--Special Reporting Rules for U.S. Branches Not 
Treated as U.S. Persons
    The final regulations do not include a rule for reporting by a U.S. 
branch of a registered deemed-compliant FFI or limited FFI that is not 
treated as a U.S. person. To correct this oversight, these temporary 
regulations add new Sec.  1.1471-4(d)(2)(iii)(C) to provide that such a 
U.S. branch is treated as having satisfied its reporting requirements 
under chapter 4 if it reports the information required under chapter 61 
with respect to account holders of accounts that the U.S. branch is 
required to treat as U.S. accounts or accounts held by owner-documented 
FFIs.
6. Reporting on Recalcitrant Account Holders--Extensions in Filing
    In response to comments, the temporary regulations modify the final 
regulations to provide an automatic 90-day extension of time in which 
to file Form 8966 with respect to recalcitrant account holders. An 
additional 90-day hardship extension may be provided in certain 
circumstances. These revisions are consistent with the extensions of 
time already permitted for filing Form 8966 with respect to U.S. 
accounts.
7. Treatment of a Disregarded Entity
    In response to comments and in order to address a potential 
ambiguity in the final regulations about whether a disregarded entity 
that is owned by an FFI is treated as a branch of an FFI, these 
temporary regulations clarify that the term branch with respect to an 
FFI includes an entity that is disregarded as an entity separate from 
the FFI. This clarification was previewed in the draft FFI agreement 
which was published in Notice 2013-69. These temporary regulations make 
additional changes throughout the final regulations to further clarify 
the treatment of a disregarded entity when such an entity is treated as 
a branch of an FFI. For example, the GIIN verification procedures that 
apply with respect to a branch of an FFI also apply with respect to a 
disregarded entity that is owned by an FFI. Additionally, a disregarded 
entity that is owned by an FFI may be treated as a limited branch if 
the disregarded entity is unable to comply with the terms of an FFI 
agreement with respect to accounts that it maintains, and the reason to 
know standards that apply to withholdable payments made to a branch of 
a participating or registered deemed-compliant FFI also apply to 
withholdable payments made to a disregarded entity that is owned by 
such an FFI.

D. Expanded Affiliated Group Requirements

    The final regulations require that, in general, each FFI within an 
expanded affiliated group must be either a participating FFI or a 
registered deemed-compliant FFI. Comments noted that some FFIs within 
an expanded affiliated group will have the status of an exempt 
beneficial owner and requested that the regulations be modified to 
allow for such FFIs to be excluded from this requirement. The temporary 
regulations modify the final regulations to adopt this comment.

E. Verification--IRS Review of Compliance

    The final regulations allow the IRS to request additional 
information in its review of Form 8966. The temporary regulations 
further allow the IRS to request additional information to determine an 
FFI's compliance with the applicable FFI agreement and to assist the 
IRS with its review of account holder compliance with tax reporting 
requirements.

F. Event of Default

    The final regulations define events of default under an FFI 
agreement. This definition includes the failure to significantly 
reduce, over a period of time, the number of recalcitrant account 
holders and payees that are nonparticipating FFIs. Comments were made 
that this language was ambiguous and could imply an event of default, 
for example, even in circumstances in which an FFI consistently 
complies with the regulatory due diligence procedures. Accordingly, in 
response to the comments, these temporary regulations modify the final 
regulations to provide that this event of default consists of a failure 
to significantly reduce, over a period of time, the number of account 
holders or payees that the participating FFI is required to treat as 
recalcitrant account holders or nonparticipating FFIs as a result of 
the participating FFI failing to comply with the due diligence 
procedures for the identification and documentation of account holders 
and payees.

VI. Comments and Changes to Sec.  1.1471-5--Definitions Applicable to 
Section 1471

A. U.S. Accounts--Account Holder--in General; Grantor Trust

    The definition of account holder in the final regulations does not 
treat a grantor trust as an account holder to the extent that the 
grantor is treated as owning the trust or all the assets in the trust 
under sections 671 through 679, regardless of whether the grantor is a 
U.S. or foreign person. If such grantor is a foreign person and the 
beneficiary of the trust is a U.S. person, the grantor is treated as 
the account holder and consequently, the account is a non-U.S. account 
and no beneficiary that is a specified U.S. person is treated as having 
an interest in the portion of the trust owned by the grantor. 
Therefore, the specified U.S. person is not an account holder and would 
not be reported even though such U.S. person might be a substantial 
U.S. owner of the foreign grantor trust. Further, for purposes of 
determining whether a foreign grantor trust has a substantial U.S. 
owner (and is a U.S. account), the final regulations provide that a 
substantial U.S. owner is any specified U.S. person treated as owning 
any portion of the grantor trust under sections 671 through 679, and a 
trust owned only by U.S. grantors is not treated as having a 
beneficiary that is a specified U.S. person. Thus, in contrast to the 
account holder rule, the test for determining a substantial U.S. owner 
of a trust is made without regard to the treatment of the settlor of 
the trust as a foreign grantor under sections 671 through 679. In 
response to requests for further clarification, these temporary 
regulations remove the grantor trust rule in the definition of account 
holder in the final regulations so that the general rule for treating 
an entity as an account holder will apply to treat a grantor trust as 
the account holder. Accordingly, a grantor trust that holds an account 
must provide documentation of its chapter 4 status as a FFI or NFFE. 
This change harmonizes the treatment of a grantor trust as an account 
holder for purposes of the chapter 4 withholding provisions with the 
provisions in chapters 3 and 61, which treat a grantor trust, rather 
than the grantor, as the payee.

B. Financial Accounts--Value of Interest Determined, Directly or 
Indirectly, Primarily by Reference to Assets That Give Rise (or Could 
Give Rise) to Withholdable Payments, and Return Earned on the Interest 
(Including Upon a Sale, Exchange, or Redemption) Determined, Directly 
or Indirectly, Primarily by Reference to one or More Investment 
Entities or Passive NFFEs

    While financial accounts generally include equity or debt interests 
(other than regularly traded interests) in investment entities, 
financial accounts include only certain enumerated categories of 
interests in holding companies, treasury centers, and other

[[Page 12820]]

financial institutions. Among the enumerated categories are certain 
equity and debt interests whose return or value is determined, directly 
or indirectly, primarily by reference to assets that give rise (or 
could give rise) to withholdable payments. The final regulations 
provide that a debt interest is considered to have a value determined 
primarily by reference to such assets if the debt interest is secured 
by the assets of a U.S. person. The final regulations provide that an 
equity interest is considered to have a value determined primarily by 
reference to such assets if the amount payable upon redemption of the 
equity interest is secured primarily by assets that give rise (or could 
give rise) to withholdable payments. A similar provision under another 
enumerated category treating certain interests in holding companies and 
treasury centers as financial accounts (see Sec. Sec.  1.1471-
5(b)(1)(iii)(B)(2) and (3)) also applies to a debt interest secured by 
the assets of one or more investment entities described in Sec. Sec.  
1.1471-5(e)(4)(i)(B) or (C) or one or more passive NFFEs that are 
members of the entity's expanded affiliated group (collectively, the 
secured equity and debt provisions).
    Comments have suggested that these provisions are overbroad because 
it is questionable whether the value of, or return earned on, a debt or 
equity interest is determined primarily by reference to assets of a 
U.S. person solely because the debt or equity interest is secured by 
such assets. In response to these comments, these temporary regulations 
modify the final regulations by eliminating the secured equity or debt 
provisions. The facts and circumstances may nonetheless lead to a 
conclusion that the value of a secured equity or debt interest is 
determined, directly or indirectly, primarily by reference to assets 
giving rise to withholdable payments (for example, when the amount 
payable as interest on, or upon redemption or retirement of, a debt 
interest is determined primarily by reference to the assets securing 
the debt interest).
    In addition, the final regulations provide that a debt interest is 
considered to have a value determined, directly or indirectly, 
primarily by reference to assets that give rise to withholdable 
payments if amounts payable as interest on, or upon redemption or 
retirement of, the debt are determined primarily by reference to the 
profits or assets of a U.S. person. This provision inadvertently did 
not address whether debt interests with amounts payable by reference to 
equity interests in a U.S. person are debt interests whose return or 
value is determined primarily by reference to assets that give rise (or 
could give rise) to withholdable payments. To correct this omission, 
the temporary regulations modify the final regulations to include a 
reference to equity interests in, as well as profits and assets of, a 
U.S. person.

C. Definition of Financial Institution

1. In General
    The final regulations provide that the definition of financial 
institution includes a holding company or treasury center that is part 
of an expanded affiliated group that includes a depository institution, 
custodial institution, insurance company, or investment entity. 
Comments noted that the definition, with respect to an insurance 
company, should be limited to a specified insurance company which is 
itself a financial institution. These temporary regulations correct the 
final regulations to treat a holding company or treasury center as a 
financial institution if it is part of an expanded affiliated group 
that includes a specified insurance company.
2. Holding Financial Assets for Others as a Substantial Portion of Its 
Business--Income Attributable To Holding Financial Assets and Related 
Financial Services
    The final regulations provide that an entity is a custodial 
institution if at least 20 percent of the entity's gross income is 
attributable to holding financial assets for others and related 
financial services. The final regulations define income attributable to 
holding financial assets to include, among other things, fees for 
providing financial advice. As a result, an entity could qualify as a 
custodial institution under the final regulations even if the entity's 
sole business is to provide financial advice to clients and it does not 
conduct any activities as a custodian or broker. Comments indicated 
that this definition is overly broad and could cause entities that do 
not hold financial assets and therefore have no financial accounts to 
be treated as custodial institutions. In response, these temporary 
regulations modify the final regulations to define income attributable 
to holding financial assets to include fees for providing financial 
advice with respect to financial assets held in (or to be held in) 
custody by the entity.
3. Investment Entity--Examples
    The final regulations generally provide that an investment entity 
includes an entity whose gross income is primarily attributable to 
investing, reinvesting, or trading in financial assets and that is 
managed by another entity that primarily conducts as a business certain 
investment-related activities. Examples 7 and 8 in Sec.  1.1471-
5(e)(4)(v) are clarified such that a foreign introducing broker does 
not manage an entity if it does not have discretionary authority to 
manage its clients' assets. However, even though these facts have been 
added to Examples 7 and 8, the results in Examples 7 and 8 remain the 
same. In Example 7, even when the introducing broker has discretionary 
authority to act unilaterally on its client's behalf with respect to 
its client's investments, because the introducing broker is an 
individual, the entity that she manages would not be treated as an 
investment entity under Sec.  1.1471-5(e)(4)(i)(B). By comparison, 
because the introducing broker in Example 8 is an entity that primarily 
conducts as a business certain investment related activities, the 
entity managed by the introducing broker would be treated as an 
investment entity under Sec.  1.1471-5(e)(4)(i)(B).
4. Exclusions--Excepted Nonfinancial Group Entities--In General
    The final regulations provide that a holding company, treasury 
center, or captive finance company will not qualify as an excepted 
nonfinancial group entity if, among other things, it is formed in 
connection with or availed of certain arrangements or investment 
vehicles. Comments requested additional guidance on what it means to be 
``formed in connection with or availed of.'' The temporary regulations 
modify the final regulations such that any entity that existed at least 
six months prior to its acquisition by an arrangement or investment 
vehicle and which, prior to the acquisition, regularly conducted 
activities in the ordinary course of business will not be considered to 
be formed in connection with or availed of such an arrangement or 
investment vehicle, in the absence of other facts suggesting the 
existence of an investment strategy.
5. Exclusions--Excepted Nonfinancial Group Entities--Nonfinancial Group
    For purposes of determining whether an expanded affiliated group is 
a nonfinancial group, the final regulations provide an income test for 
the three-year period preceding the year for which the determination is 
made. Comments requested: (i) That this exclusion also be applicable if 
the expanded affiliated group has been in existence for less than three 
years and (ii) that a group would qualify if it meets the income test 
over an average of three years (rather than having to meet the test in 
each of the

[[Page 12821]]

three preceding years). The Treasury Department and the IRS have 
determined that the exclusion should be available to expanded 
affiliated groups that have been in existence for less than three 
years, and these temporary regulations modify the final regulations 
accordingly. The Treasury Department and the IRS continue to believe, 
however, that only expanded affiliated groups that meet the income test 
in each year of the testing period should qualify for the exclusion.
    In order to provide further clarification when determining the 
percentage of income or assets of the group that produce or are held 
for the production of passive income, these temporary regulations also 
modify the final regulations by excluding transactions between members 
of the expanded affiliated group. In addition, these temporary 
regulations provide guidance on measuring the value of such assets.
6. Exclusions--Excepted Nonfinancial Group Entities--Holding Company
    Comments requested that, for purposes of determining if a holding 
company is part of an excepted nonfinancial group, a trust or 
partnership that owns all the stock of a common parent corporation of 
an expanded affiliated group be eligible for treatment as a holding 
company and member of an excepted nonfinancial group. Otherwise, such 
entities are not treated as part of the expanded affiliated group and 
cannot qualify for such exception. These temporary regulations modify 
the final regulations to allow a partnership or other non-corporate 
entity to be treated as a holding company (and therefore as a potential 
member of an excepted nonfinancial group) if substantially all the 
activities of such partnership (or other entity) consist of holding 
more than 50 percent of the voting power and value of the stock of one 
or more common parent corporation(s) of one or more expanded affiliated 
group(s). If a partnership or other non-corporate entity owns more than 
50 percent of the voting power and value of the stock of two or more 
corporations and each such corporation has its own subsidiaries such 
that it is the common parent corporation of an expanded affiliated 
group, each common parent corporation's expanded affiliated group will 
be treated as a separate such group for purposes of applying the rules 
of this section unless the non-corporate entity is treated as the 
common parent entity of the entire expanded affiliated group in 
accordance with Sec.  1.1471-5(i)(10).
7. Exclusions--Excepted Nonfinancial Group Entities--Treasury Center
    Comments were received that the definition of a treasury center in 
the final regulations is too narrow in that an entity that manages 
working capital but does not otherwise invest or trade may not satisfy 
this definition. For example, a group's cash pooling entity may be in a 
net deficit position and therefore may not be considered to be 
investing or trading in financial assets. In addition, with respect to 
the financing activities of such a vehicle, the final regulations could 
be read to limit situations in which an entity that is itself equity 
funded can qualify as a treasury center. In response to these comments, 
the temporary regulations modify the final regulations to clarify that 
an entity that manages the working capital of an expanded affiliated 
group (or any member thereof) will not cease to qualify as a treasury 
center solely because it has no investments and does not trade in 
financial assets. Further, the temporary regulations clarify that 
equity-funded affiliates may qualify as treasury centers.
8. Exclusions--Excepted Inter-Affiliate FFI
    Under the final regulations, a financial institution does not 
include certain foreign entities that are considered excepted inter-
affiliate FFIs. One of the requirements for such an entity is that it 
does not receive payments from, or hold an account with, a withholding 
agent other than a member of its expanded affiliated group. Comments 
requested that such entities be permitted to hold bank accounts with 
certain non-U.S. persons outside of the expanded affiliated group. The 
temporary regulations modify the final regulations to allow such 
entities to hold depository accounts maintained in the country in which 
the entity is operating to pay for expenses in that same country.

D. Deemed-Compliant FFIs

1. Registered Deemed-Compliant FFIs--Restricted Funds
    Under chapter 4, interests in a restricted fund that are not issued 
directly by the fund can only be sold through distributors that are 
participating FFIs, registered deemed-compliant FFIs, nonregistering 
local banks, or restricted distributors. In response to comments, even 
though these temporary regulations do not eliminate the requirement of 
the restricted fund to terminate its agreement with any distributor 
that has a change in status that causes it to no longer qualify to be a 
distributor and redeem or transfer all debt and equity interests of the 
FFI issued through that distributor, these temporary regulations do 
remove the requirement that the restricted fund certify to the IRS.
2. Registered Deemed-Compliant FFIs--Qualified Credit Card Issuers and 
Servicers
    Comments were received that an FFI that issues credit cards may 
form a separate entity that services the credit cards. Under the final 
regulations, such an entity could be an FFI, but would not be treated 
as a registered deemed-compliant FFI because it is not an issuer of 
credit cards, even though such FFI would otherwise qualify for 
registered deemed-compliant FFI status. Pursuant to these comments, the 
temporary regulations expand the registered deemed-compliant FFI 
category to include qualified credit card servicers.
3. Registered Deemed-Compliant FFIs--Sponsored Investment Entities and 
Controlled Foreign Corporations
    Under the final regulations, an FFI remains liable for its 
withholding and reporting obligations under chapter 4 even if a 
sponsoring entity performs these responsibilities on behalf of such 
FFI. In response to comments, these temporary regulations modify the 
final regulations to clarify that a sponsoring entity will not be 
jointly and severally liable for the sponsored FFI's obligations unless 
the sponsoring entity is also a withholding agent that is separately 
liable for such obligations.
4. Certified Deemed-Compliant FFIs--Nonregistering Local Bank
    The final regulations provide that, in order to be treated as a 
nonregistering local bank, an FFI's business must consist primarily of 
receiving deposits from and making loans to unrelated retail customers. 
Comments noted that the final regulations do not provide a definition 
of unrelated for this and other purposes. In addition, it may be 
unclear how the final regulations would apply to a member-owner of a 
credit union or similar cooperative credit organization. In order to 
address these concerns, and consistent with the IGAs, these temporary 
regulations modify the final regulations such that a credit union or 
similar cooperative credit organization will be eligible for treatment 
as a nonregistering local bank if its business consists primarily of 
receiving deposits from and making loans to members, provided that no 
such member has a greater than five percent interest in such credit 
union or cooperative credit organization. For purposes of

[[Page 12822]]

determining what unrelated means for retail customers of a bank, as 
well as for purposes of aggregating the interests of related members of 
a credit union or cooperative credit organization under the five 
percent test, the temporary regulations provide that the rules of 
section 267(b) apply.
5. Certified Deemed-Compliant FFIs--Limited Life Debt Investment 
Entities (Transitional)
    Comments were received stating that most securitization investment 
vehicles could not meet the requirements in the final regulations for a 
limited life debt investment entity (LLDIE) to be treated as certified 
deemed-compliant FFIs. To accommodate industry practices and expand the 
types of securitization vehicles that will qualify as a LLDIE, these 
temporary regulations make a number of significant changes to the 
definition of LLDIE in the final regulations. These changes include: 
(i) Removing the requirement that a LLDIE's organizational documents 
cannot be amended without the consent of all of its investors; (ii) 
clarifying that a LLDIE issues debt or equity interests under a trust 
indenture or similar agreement; (iii) extending the category so that it 
applies to a LLDIE that issued all of its interests on or before 
January 17, 2013 (for example, the date that the final regulations were 
filed); (iv) allowing a LLDIE to be treated as a certified deemed-
compliant FFI until the LLDIE liquidates or terminates; (v) removing 
the requirement that investors be unrelated to each other; and (vi) 
expanding the types of assets that the entity can hold and still 
qualify as a LLDIE.
6. Certified Deemed-Compliant FFIs--Investment Advisors and Investment 
Managers
    In response to comments, and to coordinate with the IGAs, these 
temporary regulations add certain investment advisors and investment 
managers that do not maintain financial accounts as entities eligible 
for treatment as certified deemed-compliant FFIs. Accordingly, these 
temporary regulations also add identification rules with respect to 
such investment advisors and investment managers.
7. Related Persons
    Certain provisions in the final regulations (such as Sec. Sec.  
1.1471-3(c)(9)(ii)(B); 1.1471-5(f)(2)(i)(B); 1,1471-5(f)(4)(i); and 
1.1471-5(i)(6)(i)) use the term related or unrelated to describe a 
relationship between parties. Comments noted that the final regulations 
do not define what is meant by related. These temporary regulations 
generally amend the relevant paragraphs of the final regulations to 
provide that parties are related for purposes of the relevant paragraph 
when such parties have a relationship described in section 267(b).

E. Expanded Affiliated Group

    Comments requested that a LLDIE not be considered a member of an 
expanded affiliated group as a result of any member of such expanded 
affiliated group owning interests in such entity. These comments 
indicated that because interests in these entities are generally held 
through a clearing organization, these entities often would not be able 
to determine the identity of their investors. In addition, comments 
noted the burden of monitoring ownership changes for the purpose of 
determining when to include or exclude a LLDIE as a member of an 
expanded affiliated group, and the potential adverse consequences to 
the rest of the group in the event that any such entity is not properly 
included. Comments also stated that the definition of expanded 
affiliated group in the final regulations presents challenges with 
respect to non-corporate entities that are within a chain of commonly 
controlled corporations. For example, the final regulations do not 
clearly indicate whether constructive ownership rules apply to 
determine whether a non-corporate entity is controlled by a member of 
the group. In response to these comments, these temporary regulations 
modify the definition of expanded affiliated group to exclude from the 
group pre-existing LLDIEs (for example, a LLDIE that issued all of its 
interests, and was in existence, on or before January 17, 2013) and 
clarify the ownership rules applicable to corporate and non-corporate 
members of the group. These temporary regulations also permit (but do 
not require) a non-corporate entity to be treated as the common parent 
entity of the expanded affiliated group.

VII. Comments and Changes to Section 1.1471-6--Payments Beneficially 
Owned by Exempt Beneficial Owners--Foreign Central Bank of Issue

    Comments were received stating that the functions of a foreign 
central bank of issue may be performed by an institution other than a 
bank. In response to these comments and in order to coordinate the 
regulations with the IGAs, these temporary regulations modify the final 
regulations to include an institution performing such functions within 
the definition of a foreign central bank of issue. In addition, 
comments stated that a foreign central bank of issue may earn income 
from cash as well as securities. Accordingly, the temporary regulations 
allow a foreign central bank of issue to be a beneficial owner with 
respect to income earned on cash.
    Comments also stated that some foreign central banks maintain 
depository accounts solely for their employees. These comments 
requested that such employee-only accounts not be treated as accounts 
held in connection with commercial activities. The Treasury Department 
and the IRS believe there is a low risk of tax evasion with respect to 
such employee accounts, and that the burden on central banks to 
register as an FFI for these activities and provide documentation as 
intermediaries would be disproportionately high. Therefore, the 
temporary regulations modify the final regulations to exclude 
maintaining such accounts from the definition of commercial activities.

VIII. Comments and Changes to Section 1.1472-1--Withholding on NFFEs

A. Exceptions--Payments to an Excepted NFFE--Active NFFEs

    Comments noted that fiscal year financial statements may not be 
used in determining whether an entity is an active NFFE. These comments 
noted that preparing calendar year financial statements for entities 
using non-calendar fiscal years would cause significant burdens without 
commensurate benefits. Therefore, these comments suggested that an 
entity be able to use either its calendar or fiscal year in analyzing 
whether the entity meets the active NFFE test. Comments further 
suggested that an entity be allowed to use financial statements based 
on foreign accounting principles. These comments have been adopted and 
these temporary regulations modify the final regulations accordingly.

B. Exceptions--Payments Made to an Excepted NFFE

    After further consideration, these temporary regulations provide 
that QIs, WPs, and WTs are treated as excepted NFFEs.

C. Exceptions--Payments to an Excepted NFFE--Direct Reporting NFFEs and 
Sponsored Direct Reporting NFFEs

    These temporary regulations provide that excepted NFFE includes a 
NFFE that is a direct reporting NFFE or sponsored direct reporting 
NFFE. A direct reporting NFFE is a NFFE that elects to report on Form 
8966 directly to the IRS certain information about its

[[Page 12823]]

direct or indirect substantial U.S. owners (or it may be required to 
certify on Form 8966, or in such other manner as the IRS may prescribe, 
that it does not have any such substantial U.S. owners) in lieu of 
providing such information to withholding agents or participating FFIs 
with which the NFFE holds a financial account. A direct reporting NFFE 
is required to register with the IRS to obtain a GIIN and to agree to 
comply with the provisions in the regulations regarding reporting 
information about its substantial U.S. owners. In general, withholding 
agents and participating FFIs will identify and document a direct 
reporting NFFE in a manner similar to how withholding agents and 
participating FFIs will document a participating FFI, including by 
verifying that the GIIN of the direct reporting NFFE is listed on the 
IRS FFI List. Notwithstanding that a direct reporting NFFE will 
document itself to withholding agents and participating FFIs in a 
manner similar to a participating FFI, it will not be treated as a 
participating FFI and will not enter into an FFI agreement. Therefore, 
since the definition of excepted NFFE includes a direct reporting NFFE, 
an account held by a direct reporting NFFE will not be treated as a 
U.S. account and will not be reported to the IRS by a participating FFI 
with which the direct reporting NFFE has a financial account.
    In addition, these temporary regulations modify the final 
regulations such that an entity may act as a sponsor for one or more 
direct reporting NFFEs. A sponsoring entity will report on Form 8966 
directly to the IRS (on the sponsored direct reporting NFFE's behalf) 
information about each sponsored direct reporting NFFE's direct or 
indirect substantial U.S. owners. These changes were previously 
announced in Notice 2013-69 and were made in response to comments.

IX. Changes and Comments to Sec.  1.1473-1--Section 1473 Definitions

A. Definition of Withholdable Payment--U.S. Source FDAP Income 
Defined--Special Rule for Sales of Interest Bearing Debt Obligations; 
Gross Proceeds Defined--Payment of Gross Proceeds--Amount of Gross 
Proceeds

    Under the final regulations, income that is otherwise described as 
U.S. source FDAP income does not include interest accrued on the date 
of a sale or exchange of an interest bearing debt obligation if the 
sale occurs between two interest payment dates. In order to harmonize 
this rule with the rules in chapter 3, these temporary regulations 
provide that this type of interest is not excluded from U.S. source 
FDAP income or gross proceeds if the sale or exchange is part of a plan 
described in the anti-abuse rule under Sec.  1.1441-3(b)(2)(ii).

B. Definition of Withholdable Payment--Payments Not Treated as 
Withholdable Payments--Offshore Payments of U.S. Source FDAP Income 
Prior to 2017 (Transitional)

1. In General
    The final regulations provide an exclusion from the definition of 
withholdable payments for certain non-intermediated offshore payments 
of U.S. source FDAP income prior to 2017. The Treasury Department and 
the IRS intended to provide that the exclusion does not apply to debt 
or equity issued by a U.S. person in order to prevent U.S. persons from 
exploiting this exception by issuing debt or equity interests through a 
foreign branch. To clarify the issue, these temporary regulations 
modify the final regulations such that the exclusion does not apply to 
payments made with respect to debt or equity issued by a U.S. person 
(excluding a deposit account maintained by a foreign branch of a U.S. 
financial institution).
    Comments indicated that because the defined term payments with 
respect to an offshore obligation is not used in the final regulations, 
it is unclear whether, in order for this exception to apply, all 
payments must be made outside the U.S. To clarify, these temporary 
regulations modify the final regulations to use the defined term.
2. Insurance Brokers
    Because the final regulations treat insurance brokers as 
intermediaries, the transitional rule for offshore payments of U.S. 
source FDAP income under the final regulations does not apply to 
insurance and reinsurance premiums paid to foreign insurance companies 
by non-U.S. insurance brokers. Comments were received stating that the 
transitional rule should apply to such premiums, because it applies to 
insurance premiums paid directly by the insured. These temporary 
regulations provide a transitional rule such that, for purposes of the 
exception for offshore payments, an intermediary does not include a 
person acting as an insurance broker with respect to premiums.

C. Definition of Withholdable Payment--Payments Not Treated as 
Withholdable Payments--Collateral Arrangements Prior to 2017 
(Transitional)

    Comments requested relief from withholding on payments made by a 
secured party with respect to collateral securing one or more 
transactions under a collateral arrangement between the secured party 
and the counterparty. Comments indicated that general industry practice 
is to commingle collateral from all counterparties in a single account 
held by the secured party and that this practice does not permit the 
identification of collateral to a particular counterparty. As a result, 
a secured party is currently unable to determine whether it is acting 
as an intermediary or a principal with respect to some or all of the 
payments made to the counterparty based upon the secured party's right 
under a collateral arrangement to sell or loan the collateral to a 
third party. To allow the industry time to develop the systems 
necessary to make this determination, these temporary regulations add a 
transitional rule so that withholding on such payments will begin on 
January 1, 2017, provided that only a commercially reasonable amount of 
collateral is held by the secured party as part of the collateral 
arrangement.

D. Substantial U.S. Owner--Indirect Ownership of Foreign Entities--
Interests Owned or Held by a Related Person

    The final regulations define a substantial U.S. owner to include a 
specified U.S. person that owns, directly or indirectly, more than 10 
percent of a foreign corporation, partnership, or trust. Ownership is 
determined by aggregating interests held by related persons, applying 
certain provisions of the regulations under section 267 to determine 
whether such persons are related. These temporary regulations clarify 
that a person must have direct or indirect ownership in the entity 
before the aggregation rules apply, such that a substantial U.S. owner 
does not include an individual with no ownership interest other than an 
interest attributed to him from a related person.

X. Changes and Comments to Sec.  1.1474-1--Liability for Withheld Tax 
and Withholding Agent Reporting

A. Information Returns for Payment Reporting--Filing Requirement--in 
General

    The final regulations provide a general statement that a 
withholding agent needs to file a Form 1042-S to report a chapter 4 
reportable amount,

[[Page 12824]]

even though there are exceptions to this rule, such as the exception 
applicable to a participating FFI that provides its withholding agent 
with sufficient information for it to do the reporting. The final 
regulations have been modified to qualify this language.
    The final regulations also provide that a recipient copy of the 
Form 1042-S may include more than one type of income, which would thus 
display information differently than the copy filed with the IRS. For 
refund purposes, it is important for the IRS to match the recipient 
copy of the Form 1042-S to the copy filed with the IRS. As previewed in 
the draft Form 1042-S instructions released on November 1, 2013, and to 
coordinate with the regulations under chapter 3, these temporary 
regulations remove the allowance for withholding agents to include more 
than one type of income or other payment on the copy of the Form 1042-S 
furnished to the recipient.
    However, to allow sufficient time for withholding agents to adapt 
to this change to the final regulations, a withholding agent will be 
permitted to include more than one type of income or other payment on 
the recipient copy of the Form 1042-S for calendar year 2014. Starting 
with calendar year 2015, the Form 1042-S and accompanying instructions 
will require a separate Form 1042-S for each type of income or other 
payment.

B. Information Returns for Payment Reporting--Filing Requirement--
Recipient--Defined; Persons That Are Not Recipients

    For Form 1042-S reporting, the final regulations provide that an 
excepted NFFE that is not acting as an agent or intermediary with 
respect to the payment is the recipient of the payment in question. 
However, if such entity is a flow-through entity, it is not treated as 
a recipient on the Form 1042-S for chapter 3 purposes. In order to have 
a consistent definition of recipient for chapters 3 and 4 reporting 
purposes (because reporting for both chapters is performed on a single 
Form 1042-S), these temporary regulations modify the final regulations 
by providing that an excepted or passive NFFE that is a flow-through 
entity is not treated as a recipient. Also, the final regulations have 
been modified to remove the provision indicating that a participating 
FFI or registered deemed-compliant FFI is not a recipient when it fails 
to provide information to the withholding agent regarding its reporting 
pools, which is reflected on Form 1042-S. These temporary regulations 
further remove the references to a participating FFI, registered 
deemed-compliant FFI, and U.S. branch that is not treated as a U.S. 
person from the definition of persons that are not recipients.

C. Information Returns for Payment Reporting--Amounts Subject To 
Reporting--in General

    These temporary regulations make a correction to the definition of 
the term chapter 4 reportable amount in Sec.  1.1474-1(d)(2) to add 
that this amount must also be a withholdable payment.

D. Information Returns for Payment Reporting--Method of Reporting--
Payments by U.S. Withholding Agents to Recipients--Payments To 
Participating FFIs, Deemed-Compliant FFIs, and Certain QIs

    Consistent with changes made by these temporary regulations to 
clarify the chapter 4 withholding rate pools, the final regulations are 
modified to clarify that a withholding agent that receives an FFI 
withholding statement from a participating FFI or registered deemed-
compliant FFI [must report with respect to each such pool identified on 
the FFI withholding statement] on a separate Form 1042-S issued to the 
participating FFI, registered deemed-compliant FFI, or QI (as 
applicable) as the recipient with respect to each such pool identified 
on an FFI withholding statement.

XI. Comments and Changes to Sec.  1.1474-6--Coordination of Chapter 4 
With Other Withholding Provisions

    These temporary regulations add a coordination rule for instances 
in which a participating FFI withholds under chapter 4 on a payment 
made to a recalcitrant account holder that is a U.S. non-exempt 
recipient, and such payment is also a reportable amount subject to 
backup withholding. The rule is applicable to cases in which the 
participating FFI does not elect to withhold on the payment under 
section 3406.

XII. Future Guidance

A. Verification Requirements of Sponsoring Entities

    Regulations describing the verification requirements of sponsoring 
entities will be proposed and issued separately from these temporary 
regulations. Under the proposed regulations, a sponsoring entity will 
be required to make two separate compliance certifications: one on 
behalf of its sponsored FFI or sponsored direct reporting NFFE with 
respect to the sponsored FFI's compliance with the requirements of an 
FFI agreement or the sponsored direct reporting NFFE's election to be 
treated as a direct reporting NFFE (as applicable), and a second 
certification on the sponsoring entity's own behalf with respect to its 
compliance with the requirements of its status as a sponsoring entity. 
In addition, the verification requirements in the proposed regulations 
will allow the IRS to request additional information from a sponsoring 
entity, such as regarding the information reported on the forms filed 
with the IRS with respect to a sponsored FFI or sponsored direct 
reporting NFFE in order to review such entities' compliance with the 
requirements for maintaining their status as a sponsored FFI or 
sponsored direct reporting NFFE, and to assist the IRS with its review 
of account holder or substantial U.S. owner compliance with tax 
reporting requirements.

B. FFI Agreement

    Several changes made by these temporary regulations are not 
reflected in and may be inconsistent with certain provisions in the FFI 
agreement. As a result, the Treasury Department and the IRS intend to 
publish a revenue procedure revising the FFI agreement to conform to 
these regulations. For instance, the rules regarding an optional escrow 
by a participating FFI of tax withheld on withholdable payments to 
dormant accounts held by recalcitrant account holders are modified in 
these temporary regulations. The FFI agreement will be revised to 
reflect that the tax withheld in escrow becomes due 90 days after the 
date that the account ceases to be a dormant account, rather than the 
date that is the earlier of 90 days or the end of the calendar year 
following the date that the account ceases to be a dormant account.
    In addition, cross references to the temporary regulations under 
chapters 3, 4, and 61 will be updated to reflect changes to the 
numbering of various sections of those temporary regulations after the 
date of publication of the revenue procedure containing the FFI 
agreement. For example, cross references in the FFI agreement to terms 
defined in the chapter 4 temporary regulations will be modified to 
reflect the addition of the term reporting Model 2 FFI and the 
renumbering of subsequent sections in Sec.  1.1471-1(b). In addition, 
an incorrect citation to Sec.  1.6049-4(b)(6) will be removed.
    The FFI agreement will also be revised to reflect a change to the 
reporting requirements by participating FFIs that elect to backup 
withhold under section 3406 rather than to withhold under chapter 4 on 
a withholdable payment that is a

[[Page 12825]]

reportable payment made to a recalcitrant account holder that is a U.S. 
non-exempt recipient subject to backup withholding. These temporary 
regulations clarify that a participating FFI may make the election to 
apply backup withholding under section 3406 with respect to an account 
holder only if it complies with the information reporting rules under 
chapter 61 and section 3406. Accordingly, various sections of the FFI 
agreement will be modified to reflect this change.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13653. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) does 
not apply to these regulations.
    The collection of information in these temporary regulations is 
contained in a number of provisions including Sec. Sec.  1.1471-3, 
1.1471-4, 1.1472-1, 1.1474-1, and 1.1474-6. In addition, these 
temporary regulations amend a number of collections of information set 
out in TD 9610. The IRS intends that the information collection 
requirements of these temporary regulations will be satisfied by filing 
Forms 8957, 8966, the W-8 series of forms, W-9, 1042, 1042-S, the 1099 
series of forms, as well as income tax returns (for example, Forms 1040 
and 1120F) and Form 843 relating to refunds. As a result, for purposes 
of the Paperwork Reduction Act (44 U.S.C. 3507), the reporting burden 
associated with the collection of information in these temporary 
regulations will be reflected in the information collection burden and 
OMB control number of the appropriate IRS form.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    Books and records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.
    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4, requires that an agency prepare a costs and benefits analysis 
and a budgetary impact statement before promulgating a rule that may 
result in the expenditure by State, local, and tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
one year. If a budgetary impact statement is required, section 205 of 
the Unfunded Mandates Reform Act requires an agency to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule. The Treasury Department and the IRS have 
determined that there is no federal mandate imposed by this rulemaking 
that may result in the expenditure by State, local, and tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year.
    For the applicability of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), please refer to the Special Analyses section of the 
preamble to the cross-referenced notice of proposed rulemaking 
published in the Proposed Rules section in this issue of the Federal 
Register. Pursuant to section 7805(f) of the Code, these regulations 
have been submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on their impact on small business.

Drafting Information

    The principal authors of these regulations are Tara Ferris, Nancy 
Lee, Michael Kaercher, and Kamela Nelan of the Office of Associate 
Chief Counsel (International). However, other personnel from the IRS 
and the Treasury Department participated in the development of these 
regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 1.1471-1 is also issued under 26 U.S.C. 1471.
    Section 1.1471-2 is also issued under 26 U.S.C. 1471.
    Section 1.1471-3 is also issued under 26 U.S.C. 1471.
    Section 1.1471-4 is also issued under 26 U.S.C. 1471.
    Section 1.1471-5 is also issued under 26 U.S.C. 1471.
    Section 1.1471-6 is also issued under 26 U.S.C. 1471.
    Section 1.1472-1 is also issued under 26 U.S.C. 1472.
    Section 1.1471-3 is also issued under 26 U.S.C. 1473.
    Section 1.1474-1 is also issued under 26 U.S.C. 1474.
    Section 1.1474-6 is also issued under 26 U.S.C. 1474.


0
Par. 2. Section 1.1471-1 is amended:
0
1. By removing paragraph (b)(81).
0
2. By redesignating paragraphs (b)(115) through (b)(142) as (b)(124) 
through (b)(151), paragraphs (b)(108) through (b)(114) as (b)(116) 
through (b)(122), paragraph (b)(107) as (b)(114), paragraphs (b)(82) 
through (b)(106) as (b)(88) through (b)(112), paragraphs (b)(75) 
through (b)(80) as (b)(82) through (b)(87), paragraphs (b)(62) through 
(b)(74) as (b)(68) through (b)(80), paragraphs (b)(39) through (b)(61) 
as (b)(44) through (b)(66), paragraphs (b)(28) through (b)(38) as 
(b)(32) through (b)(42), paragraphs (b)(18) through (b)(27) as (b)(21) 
through (b)(30), paragraphs (b)(9) through (b)(17) as (b)(11) through 
(b)(19), and paragraphs (b)(7) and (b)(8) as (b)(8) and (b)(9).
0
3. By adding new paragraphs (b)(7), (b)(10), (b)(20), (b)(31), (b)(43), 
(b)(67), (b)(81), (b)(113), (b)(115), and (b)(123).
0
4. By revising newly-designated paragraphs (b)(23), (b)(35), (b)(41), 
(b)(48), (b)(50), (b)(76), (b)(77), (b)(83), (b)(88), (b)(91), (b)(98), 
(b)(100), (b)(104)(i), (b)(104)(ii)(A) through (C), (b)(105), (b)(124), 
(b)(125), (b)(128), (b)(135), and (b)(141).
    The revisions and additions read as follows:


Sec.  1.1471-1  Scope of chapter 4 and definitions.

* * * * *
    (b) * * *
    (7) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(7).
* * * * *
    (10) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(10).
* * * * *
    (20) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(20).
* * * * *
    (23) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(23).
* * * * *
    (31) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(31).
* * * * *
    (35) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(35).
* * * * *
    (41) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(41).
* * * * *
    (43) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(43).
* * * * *
    (48) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(48).
* * * * *

[[Page 12826]]

    (50) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(50).
* * * * *
    (67) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(67).
* * * * *
    (76) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(76).
    (77) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(77).
* * * * *
    (81) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(81).
* * * * *
    (83) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(83).
* * * * *
    (88) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(88).
* * * * *
    (91) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(91).
* * * * *
    (98) [Reserved]. For further guidance, see Sec.  1.1471-1T(b)(98).
* * * * *
    (100) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(100).
* * * * *
    (104) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(104)(i).
    (ii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(104)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(104)(ii)(B).
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(104)(ii)(C).
    (105) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(105).
* * * * *
    (113) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(113).
* * * * *
    (115) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(115).
* * * * *
    (123) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(123).
    (124) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(124).
    (125) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(125).
* * * * *
    (128) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(128).
* * * * *
    (135) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(135).
* * * * *
    (141) [Reserved]. For further guidance, see Sec.  1.1471-
1T(b)(141).
* * * * *

0
Par. 3. Section 1.1471-1T is added to read as follows:


Sec.  1.1471-1T  Scope of chapter 4 and definitions (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1471-1(a).
    (b) [Reserved]. For further guidance, see Sec.  1.1471-1(b).
    (1) through (6) [Reserved]. For further guidance, see Sec.  1.1471-
1(b)(1) through (6).
    (7) Backup withholding. The term backup withholding means the 
withholding required under section 3406.
    (8) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(8).
    (9) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(9).
    (10) Branch. The term branch means a branch as defined in Sec.  
1.1471-4(e)(2)(ii).
    (11) through (19) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(11) through (19).
    (20) Chapter 4 withholding rate pool. The term chapter 4 
withholding rate pool means a pool identified on a chapter 4 
withholding statement (as described in Sec.  1.1471-3(c)(3)) provided 
by an intermediary or flow-through entity with respect to a 
withholdable payment and that is allocated to payees that are 
nonparticipating FFIs. The term chapter 4 withholding rate pool also 
includes, with respect to a pool identified on an FFI withholding 
statement provided by a participating FFI or registered deemed-
compliant FFI with respect to a withholdable payment that is allocated 
to a class of recalcitrant account holders subject to withholding under 
chapter 4 as described in Sec.  1.1471-4(d)(6)(i) (including a pool of 
account holders to which the escrow procedures for dormant accounts 
apply and U.S. persons included in a U.S. payee pool to the extent 
allowed and as described in Sec.  1.1471-3(c)(3)(iii)(B)(2)(ii) and 
(iii)).
    (21) through (22) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(21) through (22).
    (23) Consolidated obligations. The term consolidated obligations 
means multiple obligations that a withholding agent (including a 
withholding agent that is an FFI) has chosen to treat as a single 
obligation in order to treat the obligations as preexisting obligations 
pursuant to paragraph (b)(104)(ii) of this section or in order to share 
documentation between the obligations pursuant to Sec.  1.1471-3(c)(8). 
A withholding agent that has opted to treat multiple obligations as 
consolidated obligations pursuant to the previous sentence must also 
treat the obligations as a single obligation for purposes of satisfying 
the standards of knowledge requirements set forth in Sec. Sec.  1.1471-
3(e) and 1.1471-4(c)(2)(ii), and for purposes of determining the 
balance or value of any of the obligations when applying any of the 
account thresholds applicable to due diligence or reporting as set 
forth in Sec. Sec.  1.1471-3(c)(6)(ii), 1.1471-3(d), 1.1471-4(c), 
1.1471-5(a)(4), and 1.1471-5(b)(3)(vii). For example, with respect to 
consolidated obligations, if a withholding agent has reason to know 
that the chapter 4 status assigned to the account holder or payee of 
one of the consolidated obligations is inaccurate, then it has reason 
to know that the chapter 4 status assigned for all other consolidated 
obligations of the account holder or payee is inaccurate. Similarly, to 
the extent that an account balance or value is relevant for purposes of 
applying any account threshold to one or more of the consolidated 
obligations, the withholding agent must aggregate the balance or value 
of all such consolidated obligations.
    (24) through (30) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(24) through (30).
    (31) Direct reporting NFFE. The term direct reporting NFFE has the 
meaning set forth in Sec.  1.1472-1(c)(3).
    (32) through (34) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(32) through (34).
    (35) Effective date of the FFI agreement. The term effective date 
of the FFI agreement with respect to an FFI or a branch of an FFI that 
is a participating FFI means the date on which the IRS issues a GIIN to 
the FFI or branch. For participating FFIs that receive a GIIN prior to 
June 30, 2014, the effective date of the FFI agreement is June 30, 
2014.
    (36) through (40) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(36) through (40).
    (41) Excepted NFFE. The term excepted NFFE means a NFFE that is 
described in Sec.  1.1472-1(c)(1).
    (42) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(42).
    (43) Exempt recipient. The term exempt recipient means a person 
described in Sec.  1.6049-4(c)(1)(ii) (for interest, dividends, and 
royalties), a person described in Sec.  1.6045-2(b)(2)(i) (for broker 
proceeds), and a person described in Sec.  1.6041-3(q) (for rents, 
amounts paid on notional principal contracts, and other fixed or 
determinable income).
    (44) through (47) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(44) through (47).
    (48) FFI agreement. The term FFI agreement means an agreement that 
is described in Sec.  1.1471-4(a). An FFI agreement includes a QI 
agreement, a WP agreement, and a WT agreement that

[[Page 12827]]

is entered into by an FFI (other than an FFI that is a registered 
deemed-compliant FFI, including a reporting Model 1 FFI) and that has 
an effective date or renewal date on or after June 30, 2014. The term 
FFI agreement also includes a QI agreement that is entered into by a 
foreign branch of a U.S. financial institution (other than a branch 
that is a reporting Model 1 FFI) and that has an effective date or 
renewal date on or after June 30, 2014.
    (49) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(49).
    (50) Financial institution. The term financial institution has the 
meaning set forth in Sec.  1.1471-5(e) and includes a financial 
institution as defined in an applicable Model 1 or Model 2 IGA.
    (51) through (66) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(51) through (66).
    (67) Intergovernmental agreement (IGA). The term intergovernmental 
agreement or IGA means any applicable Model 1 or Model 2 IGA.
    (68) through (75) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(68) through (75).
    (76) Limited branch. The term limited branch has the meaning set 
forth in Sec.  1.1471-4(e)(2)(iii). With respect to a reporting Model 2 
FFI, a limited branch is a branch of the reporting Model 2 FFI that 
operates in a jurisdiction that prevents such branch from fulfilling 
the requirements of a participating FFI or deemed-compliant FFI, or 
that cannot fulfill the requirements of a participating FFI or deemed-
compliant FFI due to the expiration of the transitional rule for 
limited branches under Sec.  1.1471-4(e)(2)(v), and for which the 
reporting Model 2 FFI meets the terms of the applicable Model 2 IGA 
with respect to the branch.
    (77) Limited FFI. The term limited FFI has the meaning set forth in 
Sec.  1.1471-4(e)(3)(ii). With respect to a reporting Model 2 FFI, a 
limited FFI is a related entity that operates in a jurisdiction that 
prevents the entity from fulfilling the requirements of a participating 
FFI or deemed-compliant FFI or that cannot fulfill the requirements of 
a participating FFI or deemed-compliant FFI due to the expiration of 
the transitional rule for limited FFIs under Sec.  1.1471-4(e)(3)(iv), 
and for which the reporting Model 2 FFI meets the requirements of the 
applicable Model 2 IGA with respect to the entity.
    (78) through (80) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(78) through (80).
    (81) Non-exempt recipient. The term non-exempt recipient means a 
person that is not an exempt recipient.
    (82) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(82).
    (83) Nonreporting IGA FFI. The term nonreporting IGA FFI means an 
FFI that is identified as a nonreporting financial institution pursuant 
to a Model 1 IGA or Model 2 IGA that is not a registered deemed-
compliant FFI, and an FFI that is a resident of, or located or 
established in, a Model 1 or Model 2 IGA jurisdiction, as the context 
requires, and that meets the requirements for certified deemed-
compliant FFI status under Sec.  1.1471-5(f)(2).
    (84) through (87) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(84) through (87).
    (88) Offshore obligation. The term offshore obligation means an 
offshore obligation defined in Sec.  1.6049-5(c)(1) (by substituting 
the terms withholding agent or financial institution for the term 
payor).
    (89) through (90) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(89) through (90).
    (91) Participating FFI. The term participating FFI means an FFI 
that has agreed to comply with the requirements of an FFI agreement, 
including an FFI described in a Model 2 IGA that has agreed to comply 
with the requirements of an FFI agreement (a reporting Model 2 FFI). 
The term participating FFI also includes a QI branch of a U.S. 
financial institution, unless such branch is a reporting Model 1 FFI.
    (92) through (97) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(92) through (97).
    (98) Payor. The term payor has the meaning set forth in Sec. Sec.  
31.3406(a)-2 and 1.6049-1(a)(2) and generally includes a withholding 
agent.
    (99) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(99).
    (100) Person. The term person has the meaning set forth in section 
7701(a)(1) and the regulations thereunder and includes an entity or 
arrangement that is an insurance company. The term person also 
includes, with respect to a withholdable payment, a QI branch of a U.S. 
financial institution.
    (101) through (103) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(101) through (103).
    (104) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(104).
    (i) The term preexisting obligation means any account, instrument, 
contract, debt, or equity interest maintained, executed, or issued by 
the withholding agent that is outstanding on June 30, 2014. With 
respect to a withholding agent that is a participating FFI, the term 
preexisting obligation means any account, instrument, or contract 
(including any debt or equity interest) maintained, executed, or issued 
by the FFI that is outstanding on the effective date of the FFI 
agreement. With respect to a withholding agent that is a registered 
deemed-compliant FFI, a preexisting obligation means any account, 
instrument, or contract (including any debt or equity interest) that is 
maintained, executed, or issued by the FFI prior to the later of the 
date that the FFI registers as a deemed-compliant FFI pursuant to Sec.  
1.1471-5(f)(1) and receives a GIIN or the date the FFI is required to 
implement its account opening procedures under Sec.  1.1471-5(f).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
1(b)(104)(ii).
    (A) The account holder or payee also holds with the withholding 
agent (or a member of the withholding agent's expanded affiliated group 
or sponsored FFI group) an account, instrument, contract, or equity 
interest that is a preexisting obligation under paragraph (b)(104)(i) 
of this section;
    (B) The withholding agent (and, as applicable, the member of the 
withholding agent's expanded affiliated group or sponsored FFI group) 
treats both of the aforementioned obligations, and any other 
obligations of the payee or account holder that are treated as 
preexisting obligations under this paragraph (b)(104)(ii), as 
consolidated obligations; and
    (C) With respect to an obligation that is subject to AML due 
diligence, the withholding agent is permitted to satisfy such AML due 
diligence for the obligation by relying upon the AML due diligence 
performed for the preexisting obligation described in paragraph 
(b)(104)(i) of this section.
    (105) Pre-FATCA Form W-8. The term pre-FATCA Form W-8 means a 
version of a Form W-8 that was issued by the IRS prior to 2013 
(including an acceptable substitute form based on such version) and 
that does not contain chapter 4 statuses but otherwise meets the 
requirements of Sec.  1.1441-1(e)(1)(ii) applicable to such certificate 
(or substitute form) and has not expired, or a Form W-8 that was issued 
prior to 2013 and furnished by an individual to establish such 
individual's foreign status but otherwise meets the requirements of 
Sec.  1.1441-1(e)(1)(ii) applicable to such certificate and has not 
expired.
    (106) through (112) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(106) through (112).
    (113) Reportable payment. The term reportable payment means a 
payment of interest or dividends (as defined in section 3406(b)(2)) and 
other reportable

[[Page 12828]]

payments (as defined in section 3406(b)(3)).
    (114) [Reserved]. For further guidance, see Sec.  1.1471-1(b)(114).
    (115) Reporting Model 2 FFI. The term reporting Model 2 FFI means a 
participating FFI that is described in Sec.  1.1471-1(b)(91).
    (116) through (122) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(116) through (122).
    (123) Sponsored direct reporting NFFE. The term sponsored direct 
reporting NFFE has the meaning set forth in Sec.  1.1472-1(c)(5).
    (124) Sponsoring entity. The term sponsoring entity means (i) an 
entity that registers with the IRS and agrees to perform the due 
diligence, withholding, and reporting obligations of one or more FFIs 
pursuant to Sec.  1.1471-5(f)(1)(i)(F) or (f)(2)(iii); or (ii) an 
entity that registers with the IRS and agrees to perform the due 
diligence and reporting obligations of one or more direct reporting 
NFFEs pursuant to Sec.  1.1472-1(c)(5).
    (125) Standardized industry coding system. The term standardized 
industry coding system means a coding system used by the withholding 
agent or FFI to classify account holders by business type for purposes 
other than U.S. tax purposes and that was implemented by the 
withholding agent by the later of January 1, 2012, or six months after 
the date the withholding agent was formed or organized.
    (126) through (127) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(126) through (127).
    (128) Substantial U.S. owner. The term substantial U.S. owner or 
substantial United States owner has the meaning set forth in Sec.  
1.1473-1(b). In the case of a reporting Model 2 FFI, in applying this 
section with respect to a passive NFFE the term substantial U.S. owner 
means a controlling person as defined in the applicable Model 2 IGA.
    (129) through (134) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(129) through (134).
    (135) U.S. branch treated as a U.S. person. The term U.S. branch 
treated as a U.S. person means a U.S. branch of a participating FFI, 
registered deemed-compliant FFI, or NFFE that is treated as a U.S. 
person under Sec.  1.1441-1(b)(2)(iv)(A).
    (136) through (140) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(136) through (140).
    (141) U.S. person--(i) The term U.S. person or United States person 
means a person described in section 7701(a)(30), the United States 
government (including an agency or instrumentality thereof), a State 
(including an agency or instrumentality thereof), or the District of 
Columbia (including an agency or instrumentality thereof). The term 
U.S. person or United States person also means a foreign insurance 
company that has made an election under section 953(d), provided that 
either the foreign insurance company is not a specified insurance 
company (as described in Sec.  1.1471-5(e)(1)(iv)) and is not licensed 
to do business in any State, or the foreign insurance company is a 
specified insurance company and is licensed to do business in any 
State.
    (ii) The term U.S. person or United States person does not include 
a foreign insurance company that has made an election under section 
953(d) if it is a specified insurance company and is not licensed to do 
business in any State.
    (142) through (151) [Reserved]. For further guidance, see Sec.  
1.1471-1(b)(142) through (151).
    (c) [Reserved]. For further guidance, see Sec.  1.1471-1(c).
    (d) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 4. In Sec.  1.1471-2,
0
a. Revise paragraphs (a)(1), (a)(2)(i), (a)(2)(ii) introductory text, 
(a)(2)(iii)(A), and (a)(2)(v).
0
b. Remove the heading of paragraph (a)(4)(ii), and add introductory 
text to paragraph (a)(4)(ii).
0
c. Revise paragraphs (a)(4)(ii)(A), (a)(4)(ii)(B), (b)(2)(i)(A)(1), 
(b)(2)(ii)(A)(4), (b)(2)(ii)(B)(2), (b)(2)(iv), and (b)(4)(ii).
    The revisions read as follows:


Sec.  1.1471-2  Requirement to deduct and withhold tax on withholdable 
payments to certain FFIs.

    (a) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-2T(a)(1).
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-2T(a)(2)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
2T(a)(2)(ii).
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
2T(a)(2)(iii)(A).
* * * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-2T(a)(2)(v).
* * * * *
    (4) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
2T(a)(4)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
2T(a)(4)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
2T(a)(4)(ii)(B).
* * * * *
    (b) * * *
    (2) * * *
    (i) * * *
    (A) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
2T(b)(2)(i)(A)(1).
* * * * *
    (ii) * * *
    (A) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
2T(b)(2)(ii)(A)(4).
* * * * *
    (B) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
2T(b)(2)(ii)(B)(2).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
2T(b)(2)(iv).
* * * * *
    (4) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
2T(b)(4)(ii).
* * * * *

0
Par. 5. Section 1.1471-2T is added to read as follows:


Sec.  1.1471-2T  Requirement to deduct and withhold tax on withholdable 
payments to certain FFIs (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1471-2(a).
    (1) General rule of withholding. Under section 1471(a), 
notwithstanding any exemption from withholding under any other 
provision of the Code or regulations, a withholding agent must withhold 
30 percent of any withholdable payment made after June 30, 2014, to a 
payee that is an FFI unless either the withholding agent can reliably 
associate the payment with documentation upon which it is permitted to 
rely to treat the payment as exempt from withholding under paragraph 
(a)(4) of this section or the payment is made under a grandfathered 
obligation that is described in paragraph (b) of this section or 
constitutes gross proceeds from the disposition of such an obligation. 
A withholding agent that is making a payment must determine who the 
payee is under Sec.  1.1471-3(a) with respect to that payment and the 
chapter 4 status of such payee. See Sec.  1.1471-3 for requirements for 
determining the chapter 4 status of a payee, including additional 
documentation requirements that apply when a payment is made to an 
intermediary or flow-through entity that is not the payee. Withholding 
under this section applies without regard to whether the payee receives 
a withholdable payment as a beneficial owner or as an intermediary. See 
paragraph (a)(2)(iv) of this section for a description of the 
withholding requirements imposed on territory financial institutions as 
withholding agents under chapter 4. In the case of a

[[Page 12829]]

withholdable payment to a NFFE, a withholding agent is required to 
determine whether withholding applies under section 1472 and Sec.  
1.1472-1. Except as otherwise provided in the regulations under chapter 
4, a withholding obligation arises on the date a payment is made, as 
determined under Sec.  1.1473-1(a).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-2(a)(2).
    (i) Requirement to withhold on payments of U.S. source FDAP income 
to participating FFIs and deemed-compliant FFIs that are NQIs, NWPs, or 
NWTs. A withholding agent that, after June 30, 2014, makes a payment of 
U.S. source FDAP income to a participating FFI or deemed-compliant FFI 
that is an NQI receiving the payment as an intermediary, or a NWP or 
NWT, must withhold 30 percent of the payment unless the withholding is 
reduced under this paragraph (a)(2)(i). A withholding agent is not 
required to withhold on a payment, or portion of a payment, that it can 
reliably associate, in the manner described in Sec.  1.1471-3(c)(2), 
with a valid intermediary or flow-through withholding certificate that 
meets the requirements of Sec.  1.1471-3(d)(4) and a withholding 
statement that meets the requirements of Sec.  1.1471-3(c)(3)(iii)(B) 
and that allocates the payment or portion of the payment to payees for 
which no withholding is required under chapter 4. Further, a 
withholding agent is not required to withhold on a payment that it can 
reliably associate with documentation indicating that the payee is a 
U.S. branch of a participating FFI that is treated as a U.S. person 
under Sec.  1.1441-1(b)(2)(iv)(A).
    (ii) Residual withholding responsibility of intermediaries and 
flow-through entities. An intermediary or flow-through entity that 
receives a withholdable payment after June 30, 2014, is required to 
withhold on such payment to the extent required under chapter 4. 
Notwithstanding the previous sentence, an intermediary or flow-through 
entity is not required to withhold if another withholding agent has 
withheld the full amount required. Further, an NQI, NWP, or NWT is not 
required to withhold with respect to a withholdable payment under 
chapter 4 if it has provided a valid intermediary withholding 
certificate or flow-through withholding certificate and all of the 
information required by Sec.  1.1471-3(c)(3)(iii), and it does not 
know, and has no reason to know, that another withholding agent failed 
to withhold the correct amount. A QI's, WP's, or WT's obligation to 
withhold and report is determined in accordance with its QI withholding 
agreement, WP agreement, or WT agreement.
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
2(a)(2)(iii).
    (A) Election to be withheld upon for U.S. source FDAP income. A 
withholding agent is required to withhold with respect to a payment, or 
portion of a payment, that is U.S. source FDAP income subject to 
withholding that is made after June 30, 2014, to a QI that has elected 
in accordance with this paragraph to be withheld upon, unless such 
withholding agent also makes an election to be withheld upon under this 
paragraph (a)(2)(iii)(A) or is an FFI that may not accept primary 
withholding responsibility for the payment. In such case, the 
withholding agent must withhold 30 percent of the portion of the 
payment that is allocable, pursuant to a withholding statement 
described in Sec.  1.1471-3(c)(3)(iii)(B) provided by the QI, to 
recalcitrant account holders and nonparticipating FFIs. If no such 
allocation information is provided, the withholding agent must apply 
the presumption rules of Sec.  1.1471-3(f) to determine the chapter 4 
status of the payee. A QI that is an FFI and that makes the election to 
be withheld upon with respect to a payment of U.S. source FDAP income 
may not assume primary withholding responsibility under chapter 3 for 
that payment. Conversely, a QI that is an FFI and that does not make 
the election to be withheld upon with respect to a payment of U.S. 
source FDAP income is required to assume primary withholding 
responsibility under chapter 3 for that payment. The election to be 
withheld upon is only available with respect to a payment of U.S. 
source FDAP income if--
    (1) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
2(a)(2)(iii)(A)(1) through (4).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
2(a)(2)(iii)(B).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
2(a)(2)(iv).
    (v) Withholding obligation of a foreign branch of a U.S. financial 
institution. Generally, a foreign branch of a U.S. financial 
institution is a withholding agent and is not an FFI. However, a QI 
branch of a U.S. financial institution is both a withholding agent and 
either a participating FFI or a registered deemed-compliant FFI. 
Accordingly, a QI branch of a U.S. financial institution must withhold 
in accordance with this section and Sec.  1.1472-1(b) in addition to 
meeting its obligations under either Sec.  1.1471-4(b) and its FFI 
agreement or Sec.  1.1471-5(f). Similarly, a foreign branch of a U.S. 
financial institution that is also a reporting Model 1 FFI is both a 
withholding agent and a registered deemed-compliant FFI. Accordingly, a 
foreign branch of a U.S. financial institution that is a reporting 
Model 1 FFI must withhold in accordance with this section and Sec.  
1.1472-1(b). A foreign branch of a U.S. financial institution that is 
not a QI is not permitted to make an election to be withheld upon.
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
2(a)(2)(vi).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-2(a)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-2(a)(4).
    (i) through (i)(B) [Reserved]. For further guidance, see Sec.  
1.1471-2(a)(4)(i) through (a)(4)(i)(B).
    (ii) Exception to withholding for certain payments made prior to 
July 1, 2016 (transitional).
    (A) In general. For any withholdable payment made prior to July 1, 
2016, with respect to a preexisting obligation for which a withholding 
agent does not have documentation indicating the payee's status as a 
nonparticipating FFI, the withholding agent is not required to withhold 
under this section and section 1471(a) unless the payee is a prima 
facie FFI.
    (B) Prima facie FFIs. If the payee is a prima facie FFI, the 
withholding agent must treat the payee as a nonparticipating FFI 
beginning on January 1, 2015, until the date the withholding agent 
obtains documentation sufficient to establish a different chapter 4 
status of the payee. A prima facie FFI means any payee if--
    (1) through (2)(xviii) [Reserved]. For further guidance, see Sec.  
1.1471-2(a)(4)(ii)(B)(1) through (a)(4)(ii)(B)(2)(xviii).
    (iii) through (viii) [Reserved]. For further guidance, see Sec.  
1.1471-2(a)(4)(iii) through (viii).
    (5) through (5)(ii) [Reserved]. For further guidance, see Sec.  
1.1471-2(a)(5) through (a)(5)(ii).
    (b) [Reserved]. For further guidance, see Sec.  1.1471-2(b).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-2(b)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-2(b)(2).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-2(b)(2)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(i)(A).
    (1) Any obligation outstanding on July 1, 2014;
    (2) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(i)(A)(2) through (3).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(i)(B).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii).

[[Page 12830]]

    (A) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(A).
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(A)(1) through (3).
    (4) A life insurance contract under which the entire contract value 
is payable no later than upon the death of the individual(s) insured 
under the contract but, in the case of a life insurance contract that 
contains a provision that permits the substitution of a new individual 
as the insured under the contract, only until a substitution occurs; 
and
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(A)(5).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(B)(1).
    (2) Lacks a stated expiration or term (for example, a savings 
deposit or demand deposit, a deferred annuity contract, or an annuity 
contract that permits a substitution of a new individual as the 
annuitant under the contract);
    (3) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(ii)(B)(3) through (4).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(2)(iii).
    (iv) Material modification. In the case of an obligation that 
constitutes indebtedness for U.S. tax purposes, a material modification 
is any significant modification of the debt instrument as defined in 
Sec.  1.1001-3(e). For life insurance contracts, a material 
modification includes any substitution of the insured under the 
contract. In all other cases, whether a modification of an obligation 
is material is determined based on the facts and circumstances.
    (3) through (3)(iii) [Reserved]. For further guidance, see Sec.  
1.1471-2(b)(3) through (b)(3)(iii).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-2(b)(4).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-2(b)(4)(i).
    (ii) Determination of material modification. For purposes of 
paragraph (b)(2)(iv) of this section (defining material modification), 
a withholding agent, other than the issuer of the obligation (or an 
agent of the issuer), is required to treat a modification of the 
obligation as material only if the withholding agent has actual 
knowledge thereof, such as in the event the withholding agent receives 
a disclosure indicating that there has been or will be a material 
modification to such obligation. The issuer of the obligation (or an 
agent of the issuer) that is a withholding agent is required to treat a 
modification of the obligation as material if the withholding agent 
knows or has reason to know that a material modification has occurred 
with respect to the obligation.
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
2(b)(4)(iii).
    (c) [Reserved]. For further guidance, see Sec.  1.1471-2(c).
    (d) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 6. Section 1.1471-3 is amended:
0
1. By adding paragraphs (c)(6)(ii)(B)(7), (c)(8)(v), (d)(5)(iii), and 
(d)(11)(x) through (xii).
0
2. By revising paragraphs (a)(3)(iii), (a)(3)(v) through (vi), (b)(3), 
(c)(3)(ii)(C) through (D), (c)(3)(iii)(A) introductory text, 
(c)(3)(iii)(A)(5), (c)(3)(iii)(B)(1) through (4), (c)(5)(ii)(B), 
(c)(6)(ii)(B)(3), (c)(6)(ii)(B)(5) through (6), (c)(6)(ii)(C)(3) 
through (5), (c)(6)(ii)(E)(3), (c)(6)(iv), (c)(6)(v)(A) through (B), 
(c)(9)(ii)(B), (c)(9)(v), (d)(1), (d)(2)(i), (d)(2)(iii), (d)(4)(i) and 
(ii), (d)(4)(iii) introductory text, (d)(4)(iii)(A)(1), (d)(4)(iv)(A), 
(d)(4)(iv)(C) through (D), (d)(4)(v), (d)(5)(i) through (ii), 
(d)(6)(vii)(A)(1), (d)(11)(viii)(A) introductory text, 
(d)(11)(viii)(C), (d)(12)(iii)(A) through (B), (e)(2) through (3), 
(e)(4) introductory text, (e)(4)(i) through (iv), (e)(4)(v) 
introductory text, (e)(4)(v)(B)(1) through (2), (e)(4)(vi)(B), 
(e)(4)(vii)(B), (e)(4)(viii)(A)(4), and (f)(1) through (9).
    The additions and revisions read as follows:


Sec.  1.1471-3  Identification of payee.

    (a) * * *
    (3) * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(a)(3)(iii).
* * * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3T(a)(3)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
3T(a)(3)(vi).
* * * * *
    (b) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-3T(b)(3).
* * * * *
    (c) * * *
    (3) * * *
    (ii) * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(ii)(C).
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(ii)(D).
* * * * *
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(A).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(A)(5).
* * * * *
    (B) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(2).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(2)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(2)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(2)(iii).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(3)(iii)(B)(4).
* * * * *
    (5) * * *
    (ii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(5)(ii)(B).
* * * * *
    (6) * * *
    (ii) * * *
    (B) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(B)(3).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(B)(5).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(B)(6).
    (7) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(B)(7).
    (C) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(C)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(C)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(C)(5).
* * * * *
    (E) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(ii)(E)(3).
* * * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(iv).
    (v) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(v)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(6)(v)(B).
* * * * *
    (8) * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3T(c)(8)(v).
    (9) * * *
    (ii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(c)(9)(ii)(B).
* * * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3T(c)(9)(v).
    (d) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-3T(d)(1).
    (2) * * *

[[Page 12831]]

    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(d)(2)(i).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(2)(iii).
* * * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(d)(4)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(iii).
    (A) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(iii)(A)(1).
* * * * *
    (iv) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(iv)(A).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(iv)(C).
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(4)(iv)(D).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3T(d)(4)(v).
    (5) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(d)(5)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(5)(ii) through (d)(5)(ii)(B).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(5)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(5)(ii)(B).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(5)(iii) through (d)(5)(iii)(B).
    (6) * * *
    (vii) * * *
    (A) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(6)(vii)(A)(1).
* * * * *
    (11) * * *
    (viii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(11)(viii)(A).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(11)(viii)(C).
* * * * *
    (x) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(11)(x).
    (xi) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(11)(xi).
    (xii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(11)(xii) through (d)(11)(xii)(C).
    (12) * * *
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(12)(iii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(d)(12)(iii)(B).
    (e) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(2).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(3)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(3)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(3)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(3)(iv).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(4).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(4)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(ii) through (e)(4)(ii)(B.
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(ii)(B).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(4)(iv 
through (e)(4)(iv)(B)(2).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3T(e)(4)(v).
* * * * *
    (B) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(v)(B)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(v)(B)(2).
* * * * *
    (vi) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(vi)(B).
    (vii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(vii)(B).
* * * * *
    (viii) * * *
    (A) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
3T(e)(4)(viii)(A)(4).
* * * * *
    (f) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(2).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(5).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(6).
    (7) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(7) 
through (f)(7)(ii).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(7)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3T(f)(7)(ii).
    (8) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(8).
    (9) [Reserved]. For further guidance, see Sec.  1.1471-3T(f)(9) 
through (f)(9)(ii).
* * * * *

0
Par. 7. Section 1.1471-3T is added to read as follows:


Sec.  1.1471-3T  Identification of payee (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1471-3(a).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(a)(1) through (2).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-3(a)(3).
    (i) through (ii)(B) [Reserved]. For further guidance, see Sec.  
1.1471-3(a)(3)(i) through (a)(3)(ii)(B).
    (iii) U.S. intermediary or agent of a foreign person. A withholding 
agent that makes a withholdable payment to a U.S. person and has actual 
knowledge that the person receiving the payment is acting as an 
intermediary or agent of a foreign person with respect to the payment 
must treat such foreign person, and not the intermediary or agent, as 
the payee of such payment. Notwithstanding the previous sentence, a 
withholding agent that makes a withholdable payment to a U.S. financial 
institution or a U.S. insurance broker (to the extent such withholdable 
payment is a payment of premiums) that is acting as an intermediary or 
agent with respect to the payment on behalf of one or more foreign 
persons may treat the U.S. financial institution or U.S. insurance 
broker as the payee if the withholding agent does not have reason to 
know that the U.S. financial institution or U.S. insurance broker will 
not comply with its obligations to withhold under sections 1471 and 
1472.
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
3(a)(3)(iv).
    (v) Disregarded entity or limited branch. Except as otherwise 
provided in paragraph (a)(3)(v) through (vii) of this section, a 
withholding agent that makes a withholdable payment to an entity that 
is disregarded for U.S. federal tax purposes under Sec.  301.7701-
2(c)(2)(i) as an entity separate from its single owner must treat the 
single owner as the payee. The rules under Sec.  1.1471-3(d)(4) and 
(e)(3) apply to determine the circumstances under which a withholding 
agent may treat a payment made to a disregarded entity owned by an FFI 
as made to a payee that is a participating FFI or registered deemed-
compliant FFI, and not as a payment made to a payee that is a 
nonparticipating FFI. A withholding agent that makes a payment to a 
limited branch (including an entity disregarded

[[Page 12832]]

as a separate entity from its owner if such owner is an FFI and the 
disregarded entity is unable to comply with the terms of an FFI 
agreement with respect to accounts that it maintains) will be required 
to treat the payment as being made to a nonparticipating FFI.
    (vi) U.S. branch of certain foreign banks or foreign insurance 
companies. A withholdable payment to a U.S. branch of either a 
participating FFI or registered deemed-compliant FFI is a payment to a 
U.S. person if the U.S. branch is treated as a U.S. person for purposes 
of Sec.  1.1441-1(b)(2)(iv). In such case the U.S. branch is treated as 
the payee. A U.S. branch, however, that is treated as a U.S. person 
under Sec.  1.1441-1(b)(2)(iv) is not treated as a U.S. person for 
purposes of the withholding certificate it may provide to a withholding 
agent for purposes of chapter 4. Accordingly, a U.S. branch of either a 
participating FFI or registered deemed-compliant FFI that is treated as 
a U.S. person must furnish a withholding certificate on a Form W-8 to 
certify its chapter 4 status (and not a Form W-9, ``Request for 
Taxpayer Identification Number and Certification''). See also paragraph 
(f)(6) of this section for the rules under which a withholding agent 
can presume a payment constitutes income that is effectively connected 
with a U.S. trade or business. A U.S. branch of either a participating 
FFI or registered deemed-compliant FFI that is treated as a U.S. person 
for purposes of chapter 3 may not make an election to be withheld upon, 
as described in section 1471(b)(3) and Sec.  1.1471-2(a)(2)(iii), for 
purposes of chapter 4. See Sec.  1.1471-4(c)(2)(v) for the rule 
requiring a U.S. branch that has elected to be treated as a U.S. person 
to apply the due diligence rules applicable to a U.S. withholding agent 
in lieu of those otherwise applicable to a participating FFI. See also 
Sec.  1.1474-1(i)(1) and (2) for the requirement of a U.S. branch to 
report information regarding certain U.S. owners of owner documented 
FFIs and passive NFFEs. See Sec.  1.1471-4(d) for rules for when a U.S. 
branch of a participating FFI is required to report as a U.S. person.
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
3(a)(3)(vii).
    (b) [Reserved]. For further guidance, see Sec.  1.1471-3(b).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(b)(1) through (2).
    (3) Determination of whether the payment is made to a QI, WP, or 
WT. A withholding agent may treat the person who receives a payment as 
a QI, WP, or WT if the withholding agent can reliably associate the 
payment with a valid Form W-8IMY, as described in paragraph (c)(3)(iii) 
of this section, that indicates that the person who receives the 
payment is a QI, WP, or WT, provides the person's QI-EIN, WP-EIN, or 
WT-EIN, and the person's GIIN, if applicable.
    (4) [Reserved]. For further guidance, see Sec.  1.1471-3(b)(4).
    (c) [Reserved]. For further guidance, see Sec.  1.1471-3(c).
    (1) through (2)(ii) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(1) through (c)(2)(ii).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(3)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(ii).
    (A) through (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(ii)(A) through (B).
    (C) The person's entity classification for U.S. tax purposes;
    (D) The person's chapter 4 status; and
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(ii)(E).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(iii).
    (A) In general. A withholding certificate of an intermediary, flow-
through entity, or U.S. branch of such entity (whether or not such 
branch is treated as a U.S. person) is valid for purposes of chapter 4 
only if it is furnished on a Form W-8IMY, an acceptable substitute 
form, or such other form as the IRS may prescribe, it is signed under 
penalties of perjury by a person with authority to sign for the person 
named on the form, its validity period has not expired, and it contains 
the following information, statements, and certifications--
    (1) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(iii)(A)(1) through (4).
    (5) A GIIN, in the case of a participating FFI or a registered 
deemed-compliant FFI (including a U.S. branch of such an entity, 
whether or not such branch is treated as a U.S. person, and a QI, WP, 
or WT that is a participating FFI or registered deemed-compliant FFI), 
and an EIN in the case of a QI, WP, or WT. Additionally, if a branch 
(other than a U.S. branch) of a participating FFI or registered deemed-
compliant FFI outside of its country of residence acts as an 
intermediary, the GIIN of such branch must be provided on the 
withholding certificate. In the case of a U.S. branch, the GIIN 
provided must be the GIIN assigned to the participating FFI or 
registered deemed-compliant FFI.
    (6) through (12) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(3)(iii)(A)(6) through (12).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(iii)(B).
    (1) In general. A withholding statement forms an integral part of 
the withholding certificate and the penalties of perjury statement 
provided on the withholding certificate applies to the withholding 
statement as well. The withholding statement may be provided in any 
manner, and in any form, to which the person submitting the form and 
the withholding agent mutually agree, including electronically. A 
withholding statement may be provided electronically only if it meets 
the requirements of Sec.  1.1441-1(e)(3)(iv)(B). The withholding 
statement must be updated as often as necessary for the withholding 
agent to meet its reporting and withholding obligations under chapter 
4. A withholding agent will be liable for tax, interest, and penalties 
under Sec.  1.1474-1(a) to the extent it does not follow the 
presumption rules of paragraph (f) of this section for any payment, or 
portion thereof, for which a withholding statement is required and the 
withholding agent does not have a valid withholding statement prior to 
making a payment. A withholding agent that is making a payment for 
which a withholding statement is also required for purposes of chapter 
3 may only rely upon the withholding statement if, in addition to 
providing the information required by paragraph (c)(3)(iii)(B) of this 
section, the withholding statement also includes all of the information 
required for purposes of chapter 3 and specifies the chapter 4 status 
of each payee or pool of payees identified on the withholding statement 
for purposes of chapter 3.
    (2) Special requirements for an FFI withholding statement.
    (i) An FFI withholding statement may include either payee-specific 
information or pooled information that indicates the portion of the 
payment allocable to a chapter 4 withholding rate pool of U.S. payees, 
each class of recalcitrant account holders identified in Sec.  1.1471-
4(d)(6), or a class of nonparticipating FFIs. If payee-specific 
information is provided for purposes of chapter 4 it must indicate both 
the portion of the payment allocated to each payee and each payee's 
chapter 4 status. A participating FFI that applies the escrow 
procedures described in Sec.  1.1471-4(b)(6) for dormant accounts must 
also indicate the portion of the payment allocated to a chapter 4 
withholding rate pool of recalcitrant account holders that hold dormant 
accounts for which the participating FFI

[[Page 12833]]

(and not the withholding agent) will withhold in escrow. The 
withholding statement provided by a participating FFI that applies the 
election to backup withhold under Sec.  1.1471-4(b)(3)(iii) must also 
indicate the portion of the reportable payment that is a withholdable 
payment allocated to each recalcitrant account holders subject to 
backup withholding under section 3406. See section 3406 for when backup 
withholding is required, including the exception to backup withholding 
under Sec.  31.3406(g)-1(e). Regardless of whether the FFI withholding 
statement provides information on a pooled or payee-specific basis, a 
withholding statement provided by an FFI other than an FFI acting as a 
WP, WT, or QI with respect to the account must also identify each 
intermediary or flow-through entity that receives the payment and such 
entity's chapter 4 status and GIIN, when applicable. An FFI withholding 
statement must also include any other information that the withholding 
agent or payor reasonably requests in order to fulfill its obligations 
under chapter 4, and chapters 3 and 61, if applicable.
    (ii) An FFI withholding statement provided by a reporting Model 2 
FFI or a reporting Model 1 FFI may indicate, with respect to a 
withholdable payment, that the payment is allocable to a chapter 4 
withholding rate pool of U.S. payees, which is comprised of account 
holders that are not subject to withholding under chapters 3 or 4 or to 
backup withholding under section 3406 (for example, presumed U.S. non-
exempt recipients) and that are, with respect to a reporting Model 2 
FFI, the holders of non-consenting U.S. accounts as described in an 
applicable IGA when the FFI reports the accounts in one of the pools 
described in Sec.  1.1471-4(d)(6) for the year in which the payment is 
made; or with respect to a reporting Model 1 FFI, the holders of 
accounts that have U.S. indicia for which appropriate documentation 
sufficient to treat the accounts as held by other than specified U.S. 
persons has not been provided pursuant to an applicable Model 1 IGA and 
the reporting Model 1 FFI reports the accounts as U.S. reportable 
accounts pursuant to the applicable Model 1 IGA for the year in which 
the payment is made.
    (iii) An FFI withholding statement provided by a participating FFI 
or registered deemed-compliant FFI that is a non-U.S. payor (a payor 
other than a U.S. payor as defined in Sec.  1.6049-5(c)(5)) may 
indicate, with respect to a withholdable payment, that the payment is 
allocable to a chapter 4 withholding rate pool of U.S. payees (in 
addition to the U.S. payees described in paragraph 
(c)(3)(iii)(B)(2)(ii) of this section), which is comprised of account 
holders that are not subject to withholding under chapters 3 or 4 or to 
backup withholding under section 3406 and that are, with respect to a 
participating FFI (including a reporting Model 2 FFI), account holders 
that hold U.S. accounts (as defined in Sec.  1.1471-1(b)(134) and an 
applicable Model 2 IGA) that the FFI reports as U.S. accounts pursuant 
to Sec.  1.1471-4(d)(3) or (5) for the year in which the payment is 
made; with respect to a registered deemed-compliant FFI (other than a 
reporting Model 1 FFI), account holders of U.S. accounts that the FFI 
reports pursuant to the conditions of its applicable deemed-compliant 
status under Sec.  1.1471-5(f)(1) for the year in which the payment is 
made; or with respect to a reporting Model 1 FFI, account holders of 
U.S. accounts that the reporting Model 1 FFI reports as reportable U.S. 
accounts pursuant to an applicable Model 1 IGA, and which includes the 
U.S. TINs of such account holders, for the year in which the payment is 
made.
    (3) Special requirements for a chapter 4 withholding statement. A 
chapter 4 withholding statement must contain the name, address, TIN (if 
any), entity type, and chapter 4 status of each payee, the amount 
allocated to each payee, a valid withholding certificate or other 
appropriate documentation sufficient to establish the chapter 4 status 
of each payee, and each intermediary or flow-through entity that 
receives the payment on behalf of the payee, in accordance with 
paragraph (d) of this section, and any other information the 
withholding agent reasonably requests in order to fulfill its 
obligations under chapter 4. Notwithstanding the prior sentence, a 
chapter 4 withholding statement is permitted to provide pooled 
allocation information with respect to payees that are treated as 
nonparticipating FFIs. Additionally, if the payment is a reportable 
amount under chapters 3 or 61, see the provisions of those chapters for 
any additional information that may be required (including pooled 
information under the alternative procedures described in Sec.  1.1441-
1(e)(3)(iv)(D), if applicable).
    (4) Special requirements for an exempt beneficial owner withholding 
statement. An exempt beneficial owner withholding statement must 
include the name, address, TIN (if any), entity type, and chapter 4 
status of each exempt beneficial owner on behalf of which the 
nonparticipating FFI is receiving the payment, the amount of the 
payment allocable to each exempt beneficial owner, a valid withholding 
certificate or other documentation sufficient to establish the chapter 
4 status of each exempt beneficial owner in accordance with paragraph 
(d) of this section, and any other information the withholding agent 
reasonably requests in order to fulfill its obligations under chapter 
4. The withholding statement must allocate the remainder of the payment 
that is not allocated to an exempt beneficial owner to the 
nonparticipating FFI receiving the payment. With respect to the amount 
of the payment allocable to each exempt beneficial owner and subject to 
withholding under chapter 3, see Sec.  1.1441-1(e)(3)(iv).
    (C) through (H) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(3)(iii)(C) through (H).
    (iv) through (v) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(3)(iv) through (v).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(5).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(5)(i) 
through (c)(5)(i)(E).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(5)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(5)(ii)(A).
    (B) Preexisting obligation documentary evidence. With respect to a 
preexisting obligation of an entity, any classification in the 
withholding agent's records with respect to the payee that was 
determined based on documentation supplied by the payee (or other 
person receiving the payment) or a standardized industry coding system 
and that was recorded by the withholding agent consistent with its 
normal business practices for AML or another regulatory purpose (other 
than for tax purposes), to the extent permitted by paragraph (d) of 
this section and provided there is no U.S. indicia associated with the 
payee for which appropriate curing documentation has not been obtained 
as set forth in paragraph (e) of this section; and
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(5)(ii)(C).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(6).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(6)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(B).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(B)(1) through (2).

[[Page 12834]]

    (3) A beneficial owner withholding certificate that is provided by 
an entity described in paragraph (c)(6)(ii)(C)(2) of this section 
(other than an entity described in paragraph (c)(6)(ii)(C)(2)(iii) of 
this section) and documentary evidence establishing the entity's 
foreign status when both are provided together;
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(B)(4).
    (5) A withholding certificate, written statement, or documentary 
evidence furnished by a foreign government, government of a U.S. 
territory, foreign central bank (including the Bank for International 
Settlements), international organization, or entity that is wholly 
owned by any such entities;
    (6) Documentary evidence that is not generally renewed or amended 
(such as a certificate of incorporation); and
    (7) For the validity period of a beneficial owner withholding 
certificate provided by an entity described in paragraph 
(c)(6)(ii)(C)(2)(iii) of this section, see Sec.  1.1441-1(e)(4)(ii).
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(C).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(C)(1) through (c)(6)(ii)(C)(2)(x).
    (3) A withholding certificate or written statement of an owner-
documented FFI, but not including the withholding statements, 
documentary evidence, and withholding certificates of its owners 
(unless such documentation is permitted indefinite validity under 
another provision);
    (4) An owner reporting statement associated with a withholding 
certificate of an owner-documented FFI, provided the account balance of 
all accounts held by such owner-documented FFI with the withholding 
agent does not exceed $1,000,000 on the later of June 30, 2014, or the 
last day of the calendar year in which the account was opened, and the 
last day of each subsequent calendar year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4)(iii), and 
the owner-documented FFI does not have any contingent beneficiaries or 
designated classes with unidentified beneficiaries; and
    (5) A withholding certificate of a passive NFFE or excepted 
territory NFFE, provided the account balance of all accounts held by 
such entity with the withholding agent does not exceed $1,000,000 on 
the later of June 30, 2014, or the last day of the calendar year in 
which the account was opened, and the last day of each subsequent 
calendar year preceding the payment, applying the aggregation 
principles of Sec.  1.1471-5(b)(4)(iii), and the withholding agent does 
not know or have reason to know that the entity has any contingent 
beneficiaries or designated classes with unidentified beneficiaries.
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(D).
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(E).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(6)(ii)(E)(1) through (2).
    (3) Withholding agent's obligation with respect to a change in 
circumstances. A certificate or other documentation becomes invalid on 
the date that the withholding agent holding the certificate or 
documentation knows or has reason to know that circumstances affecting 
the correctness of the certificate or documentation have changed. 
However, a withholding agent may choose to treat a person as having the 
same chapter 4 status that it had prior to the change in circumstances 
until the earlier of 90 days from the date that the certificate or 
documentation became invalid due to the change in circumstances or the 
date that a new certificate or new documentation is obtained. See, 
however, Sec.  1.1441-1(e)(4)(ii)(D) for requirements, including the 
requirement to withhold under chapters 3 or 61, applicable when a 
change in circumstances occurs for purposes of chapter 3 and the 
related grace period allowed under Sec.  1.1441-1(b)(3)(iv). A 
withholding agent may rely on a certificate without having to inquire 
into possible changes of circumstances that may affect the validity of 
the statement, unless it knows or has reason to know that circumstances 
have changed. A withholding agent may require a new certificate or 
additional documentation at any time prior to a payment, regardless of 
whether the withholding agent knows or has reason to know that any 
information stated on the certificate or documentation has changed.
    (iii) through (iii)(B) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(6)(iii) through (c)(6)(iii)(B).
    (iv) Electronic transmission of withholding certificate, written 
statement, and documentary evidence. A withholding agent may accept a 
withholding certificate (including an acceptable substitute form), a 
written statement, or other such form as the IRS may prescribe, 
electronically in accordance with the requirements set forth in Sec.  
1.1441-1(e)(4)(iv)(B).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(6)(v).
    (A) In general. A withholding agent may substitute its own form for 
an official Form W-8 (or such other official form as the IRS may 
prescribe). A substitute form will be acceptable if it contains 
provisions that are substantially similar to those of the official 
form, it contains the same certifications relevant to the transactions 
as are contained on the official form and these certifications are 
clearly set forth, and the substitute form includes a signature-under-
penalties-of-perjury statement identical to the one on the official 
form. The substitute form is acceptable even if it does not contain all 
of the provisions contained on the official form, so long as it 
contains those provisions that are relevant to the transaction for 
which it is furnished. A withholding agent may choose to provide a 
substitute form that does not include all of the chapter 4 statuses 
provided on the official version but the substitute form must include 
any chapter 4 status for which withholding may apply, such as the 
categories for a nonparticipating FFI or passive NFFE. A withholding 
agent that uses a substitute form must furnish instructions relevant to 
the substitute form only to the extent and in the manner specified in 
the instructions to the official form. A withholding agent may use a 
substitute form that is written in a language other than English and 
may accept a form that is filled out in a language other than English, 
but the withholding agent must make available an English translation of 
the form and its contents to the IRS upon request. A withholding agent 
may refuse to accept a certificate (including the official Form W-8) 
from a person if the certificate provided is not an acceptable 
substitute form provided by the withholding agent, but only if the 
withholding agent furnishes the person with an acceptable substitute 
form within five business days of receipt of an unacceptable form from 
the person. In that case, the substitute form is acceptable only if it 
contains a notice that the withholding agent has refused to accept the 
form submitted by the person and that the person must submit the 
acceptable form provided by the withholding agent in order for the 
person to be treated as having furnished the required withholding 
certificate.
    (B) Non-IRS form for individuals. A withholding agent may also 
substitute its own form for an official Form W-8BEN (for individuals), 
regardless of whether the substitute form is titled a Form W-8. 
However, in addition to the name and address of the individual that is 
the payee or beneficial owner, the substitute form must provide all 
countries in which the individual is resident for tax purposes, country 
of birth, a tax identification number (if any) for each country of 
residence, the individual's date of birth, and must

[[Page 12835]]

contain a signed and dated certification made under penalties of 
perjury that the information provided on the form is accurate and will 
be updated by the individual within 30 days of a change in 
circumstances that causes the form to become incorrect. Notwithstanding 
the previous sentence, the signed certification provided on a form need 
not be signed under penalties of perjury if the form is accompanied by 
documentary evidence that supports the individual's claim of foreign 
status. Such documentary evidence may be the same documentary evidence 
that is used to support foreign status in the case of a payee whose 
account has U.S. indicia as described in paragraph (e) of this section 
or Sec.  1.1471-4(c)(4)(i)(A). The form may also request other 
information required for purposes of tax or AML due diligence in the 
United States or in other countries.
    (vi) through (vii) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(6)(vi) through (vii).
    (7) through (7)(ii) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(7) through (c)(7)(ii).
    (8) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(8).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(8)(i) through (iv).
    (v) Preexisting account. A withholding agent may rely on 
documentation furnished by a payee for a preexisting account held at 
another branch location of the same withholding agent or at a branch 
location of a member of the expanded affiliated group of the 
withholding agent if the withholding agent obtains and reviews copies 
of such documentation supporting the chapter 4 status designated for 
the payee and the withholding agent has no reason to know that, at the 
time the documentation is obtained by the withholding agent, the 
documentation is unreliable or incorrect. For example, the withholding 
agent may not rely on documentation furnished by a payee for a 
preexisting account held at another branch location of the same 
withholding agent or at a branch location of a member of the expanded 
affiliated group of the withholding agent if, based on information in 
the withholding agent's account records, the withholding agent has 
reason to know that such documentation is unreliable or incorrect.
    (9) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(9).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-3(c)(9)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(9)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(9)(ii)(A).
    (B) The third-party data provider must be in the business of 
providing credit reports or business reports to customers unrelated to 
it and must have reviewed all information it has for the entity and 
verified that such additional information does not conflict with the 
chapter 4 status claimed by the entity. For purposes of this paragraph 
(c)(9)(ii)(B), a customer is related to a third-party data provider if 
they have a relationship with each other that is described in section 
267(b).
    (C) through (F) [Reserved]. For further guidance, see Sec.  1.1471-
3(c)(9)(ii)(C) through (F).
    (iii) through (iv)(D) [Reserved]. For further guidance, see Sec.  
1.1471-3(c)(9)(iii) through (c)(9)(iv)(D).
    (v) Reliance upon documentation for accounts acquired in merger or 
bulk acquisition for value. A withholding agent that acquires an 
account from a predecessor or transferor in a merger or bulk 
acquisition of accounts for value is permitted to rely upon valid 
documentation (or copies of valid documentation) collected by the 
predecessor or transferor. In addition, a withholding agent that 
acquires an account in a merger or bulk acquisition of accounts for 
value, other than a related party transaction, from a U.S. withholding 
agent, a participating FFI that has completed all due diligence 
required under its agreement with respect to the accounts transferred, 
or a reporting Model 1 FFI that has completed all due diligence 
required pursuant to the applicable Model 1 IGA, may also rely upon the 
predecessor's or transferor's determination of the chapter 4 status of 
an account holder for a transition period of the lesser of six months 
from the date of the merger or until the acquirer knows that the claim 
of status is inaccurate or a change in circumstances occurs. At the end 
of the transition period, the acquirer will be permitted to rely upon 
the predecessor's determination as to the chapter 4 status of the 
account holder only if the documentation that the acquirer has for the 
account holder, including documentation obtained from the predecessor 
or transferor, supports the chapter 4 status claimed. An acquirer that 
discovers at the end of the transition period that the chapter 4 status 
assigned by the predecessor or transferor to the account holder was 
incorrect and, as a result, has not withheld as it would have been 
required to but for its reliance upon the predecessor's determination, 
will be required to withhold on payments made after the transition 
period, if any, to the account holder equal to the amount of tax that 
should have been withheld during the transition period but for the 
erroneous classification as to the account holder's status. For 
purposes of this paragraph (c)(9)(v), a related party transaction is a 
merger or sale of accounts in which either the acquirer is in the same 
expanded affiliated group as the predecessor or transferor prior to or 
after the merger or acquisition or the predecessor or transferor (or 
shareholders of the predecessor or transferor) obtains a controlling 
interest in the acquirer or in a newly formed entity created for 
purposes of the merger or acquisition. See Sec.  1.1471-4(c)(2)(ii)(B) 
for an additional allowance for a participating FFI to rely upon the 
determination made by another participating FFI as to the chapter 4 
status of an account obtained as part of a merger or bulk acquisition 
for value.
    (d) [Reserved]. For further guidance, see Sec.  1.1471-3(d).
    (1) Reliance on pre-FATCA Form W-8. To establish a payee's status 
as a foreign individual, foreign government, government of a U.S. 
territory, or international organization, a withholding agent may rely 
upon a pre-FATCA Form W-8 in lieu of obtaining an updated version of 
the withholding certificate. This reliance is only available in the 
case of a payee that is an international organization if such payee is 
described under section 7701(a)(18). To establish the chapter 4 status 
of a payee that is not a foreign individual, a foreign government, or 
an international organization, a withholding agent may, for payments 
made prior to January 1, 2017, rely upon a pre-FATCA Form W-8 in lieu 
of obtaining an updated version of the withholding certificate if the 
withholding agent has one or more forms of documentary evidence 
described in paragraphs (c)(5)(ii), as necessary, to establish the 
chapter 4 status of the payee and the withholding agent has obtained 
any additional documentation or information required for the particular 
chapter 4 status (such as withholding statements, certifications as to 
owners, or required documentation for underlying owners), as set forth 
under the specific payee rules in paragraphs (d)(2) through (12) of 
this section. See paragraph (d)(4)(ii) and (iv) of this section for 
specific requirements applicable when relying upon a pre-FATCA Form W-8 
for a participating FFI or registered deemed-compliant FFI. This 
paragraph (d)(1) does not apply to nonregistering local banks, FFIs 
with only low-value accounts, sponsored FFIs, owner-documented FFIs, 
territory financial institutions that are not the

[[Page 12836]]

beneficial owners of the payment, foreign central banks (other than a 
foreign central bank specifically identified as an exempt beneficial 
owner under a Model 1 IGA or Model 2 IGA), or international 
organizations not described under section 7701(a)(18).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(2).
    (i) In general. A withholding agent must treat a payee as a U.S. 
person, including a payee that is a foreign branch of a U.S. person 
(other than a branch that is treated as a QI) or is an FFI that has 
elected to be treated as a U.S. person for tax purposes under section 
953(d), if it has a valid Form W-9 associated with the payee or if it 
must presume the payee is a U.S. person under the presumption rules set 
forth in paragraph (f) of this section. Consistent with the presumption 
rules in paragraph (f)(3) of this section, a withholding agent must 
treat a payee that has provided a valid Form W-9 as a specified U.S. 
person unless the Form W-9 contains a certification that the payee is 
other than a specified U.S. person. Notwithstanding the foregoing, a 
withholding agent receiving a Form W-9 indicating that the payee is 
other than a specified U.S. person must treat the payee as a specified 
U.S. person if the withholding agent knows or has reason to know that 
the payee's claim that it is other than a specified U.S. person is 
incorrect. For example, a withholding agent that receives a Form W-9 
from a payee that is an individual would be required to treat the payee 
as a specified U.S. person regardless of whether the Form W-9 indicates 
that the payee is not a specified U.S. person, because an individual 
that is a U.S. person is not excepted from the definition of a 
specified U.S. person.
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(2)(ii).
    (iii) Preexisting obligations. As an alternative to applying the 
rules in paragraphs (d)(2)(i) and (ii) of this section, a withholding 
agent that makes a payment with respect to a preexisting obligation may 
treat a payee as a U.S. person if it has a notation in its files that 
it has previously reviewed a Form W-9 that established that the payee 
is a U.S. person and has retained the payee's TIN. A withholding agent, 
other than a participating FFI or registered deemed-compliant FFI, may 
also treat a payee of a payment with respect to a preexisting 
obligation as a U.S. person if it has previously classified the payee 
as a U.S. person for purposes of chapters 3 or 61 and established 
(through the documentation or the application of the rules in Sec.  
1.6049-4(c)(1)(ii)) that the payee is an exempt recipient for purposes 
of chapter 61.
    (3) through (3)(ii) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(3) through (d)(3)(ii).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(4).
    (i) In general. Except as otherwise provided in paragraphs 
(d)(4)(ii) through (iv) or paragraphs (e)(3)(i) and (ii) of this 
section, a withholding agent may treat a payee as a participating FFI 
or registered deemed-compliant FFI only if the withholding agent has a 
withholding certificate identifying the payee as a participating FFI, 
registered deemed-compliant FFI, or branch thereof (including an entity 
that is disregarded as an entity separate from the FFI), and the 
withholding certificate contains a GIIN for the payee that is verified 
against the published IRS FFI list in the manner described in paragraph 
(e)(3) of this section (indicating when a withholding agent may rely 
upon a GIIN). For payments made prior to January 1, 2016, a registered 
deemed-compliant FFI that is a sponsored FFI must provide the GIIN of 
its sponsoring entity on the withholding certificate if the sponsored 
FFI has not obtained a GIIN. See paragraph (c)(3)(iii) of this section 
for additional requirements that apply to a valid withholding 
certificate provided by a participating FFI or registered deemed-
compliant FFI that is a flow-through entity or is acting as an 
intermediary with respect to the payment, or by a U.S. branch of a 
participating FFI or registered deemed-compliant FFI (including a U.S. 
entity that is disregarded as an entity separate from the FFI).
    (ii) Exception for payments made prior to January 1, 2017, with 
respect to preexisting obligations (transitional). For payments made 
prior to January 1, 2017, with respect to a preexisting obligation, a 
withholding agent may treat a payee as a participating FFI or 
registered deemed-compliant FFI, or branch thereof (including an entity 
that is disregarded as an entity separate from the FFI), if the payee 
has provided the withholding agent with a pre-FATCA Form W-8 and 
(either orally or in writing) its GIIN and has indicated whether it is 
a participating FFI or a registered deemed-compliant FFI (or whether 
such branch or disregarded entity is treated as a participating FFI or 
a registered deemed-compliant FFI), and the withholding agent has 
verified the GIIN of the FFI, branch, or disregarded entity, as the 
context requires, in the manner described in paragraph (e)(3) of this 
section.
    (iii) Exception for offshore obligations. A withholding agent that 
makes a payment, other than a payment of U.S. source FDAP income, with 
respect to an offshore obligation may treat a payee as a participating 
FFI or registered deemed-compliant FFI, or branch thereof (including an 
entity that is disregarded as an entity separate from the FFI), if the 
payee provides the withholding agent with its GIIN and states whether 
the payee is a participating FFI or a registered deemed-compliant FFI, 
and the withholding agent verifies the GIIN in the manner described in 
paragraph (e)(3) of this section. A withholding agent that makes a 
payment of U.S. source FDAP income with respect to an offshore 
obligation may treat the payee as a participating FFI or registered 
deemed-compliant FFI, or branch thereof (including an entity that is 
disregarded as an entity separate from the FFI) if--
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(4)(iii)(A).
    (1) A written statement that contains the payee's GIIN, states that 
the payee is the beneficial owner of the payment, and indicates whether 
the payee is treated as a participating FFI or a registered deemed-
compliant FFI, as appropriate; and
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(4)(iii)(A)(2).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(4)(iii)(B).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(4)(iv).
    (A) For payments made prior to January 1, 2015, a withholding agent 
may treat a payee that is an FFI or branch of an FFI (including an 
entity that is disregarded as an entity separate from the FFI) as a 
reporting Model 1 FFI if it receives a withholding certificate from the 
payee indicating that the payee is a reporting Model 1 FFI and the 
country in which the payee is a reporting Model 1 FFI, regardless of 
whether the certificate contains a GIIN for the payee.
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(4)(iv)(B).
    (C) For payments made prior to January 1, 2015, with respect to an 
offshore obligation, a withholding agent may treat a payee as a 
reporting Model 1 FFI if the payee informs the withholding agent that 
the payee is a reporting Model 1 FFI and provides the country in which 
the payee is a reporting Model 1 FFI. In the case of a payment of U.S. 
source FDAP income, such payee must also provide a written statement 
that it is the beneficial owner and documentary evidence supporting the 
payee's claim of foreign status (as

[[Page 12837]]

described in paragraph (c)(5)(i) of this section).
    (D) For payments made on or after January 1, 2015, that do not 
constitute U.S. source FDAP income, the withholding agent may continue 
to treat a payee as a reporting Model 1 FFI if the payee provides the 
withholding agent with its GIIN, either orally or in writing, and the 
withholding agent verifies the GIIN in the manner described in 
paragraph (e)(3) of this section.
    (v) Reason to know. Except as otherwise provided in this paragraph 
(d)(4), a withholding certificate or written statement pursuant to 
which the payee claims a status as a participating FFI or registered 
deemed-compliant FFI but does not provide the payee's GIIN or provides 
a GIIN that does not appear on the current published IRS FFI list will 
be invalid for purposes of chapter 4 beginning on the date that is 90 
days after the date that the claim is made by the payee. The payee will 
be treated as an undocumented payee beginning on the date that the form 
is invalid, and will be subject to withholding on payments made on or 
after that date until valid documentation (which includes a confirmed 
GIIN under paragraph (e)(3)(i) of this section) is provided. A 
withholding agent that has withheld as required in the previous 
sentence may apply reimbursement or set-off procedures, as described in 
Sec.  1.1474-2(a), if it is later determined that the payee appeared on 
the IRS FFI list as a participating FFI or registered deemed-compliant 
FFI at the time of payment.
    (5) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(5).
    (i) In general. Except as otherwise provided in this paragraph 
(d)(5), a withholding agent may treat a payee as a certified deemed-
compliant FFI, other than a sponsored, closely held investment vehicle, 
if the withholding agent has a withholding certificate that identifies 
the payee as a certified deemed-compliant FFI, and the withholding 
certificate contains a certification by the payee that it meets the 
requirements to qualify as the type of certified deemed-compliant FFI 
identified on the withholding certificate. See paragraph (c)(3)(iii) of 
this section for additional requirements that apply to a valid 
withholding certificate provided by a certified deemed-compliant FFI 
that is a flow-through entity or is acting as an intermediary with 
respect to the payment, or by a U.S. branch of a certified deemed-
compliant FFI.
    (ii) Sponsored, closely held investment vehicles-- (A) In general. 
A withholding agent may treat a payee as a sponsored, closely held 
investment vehicle described in Sec.  1.1471-5(f)(2)(iii) if the 
withholding agent can reliably associate the payment with a withholding 
certificate that identifies the payee as a sponsored, closely held 
investment vehicle and includes the sponsoring entity's GIIN, which the 
withholding agent has verified against the published IRS FFI list in 
the manner described in paragraph (e)(3) of this section. In addition 
to the standards of knowledge rules indicated in paragraph (e) of this 
section, a withholding agent will have reason to know that the payee is 
not a sponsored, closely held investment vehicle described in Sec.  
1.1471-5(f)(2)(iii) if its AML due diligence indicates that the payee 
has in excess of 20 individual investors that own direct and/or 
indirect interests in the payee. See paragraph (c)(3)(iii) of this 
section for additional requirements that apply to a valid withholding 
certificate provided by a sponsored, closely held investment vehicle 
that is a flow-through entity or is acting as an intermediary with 
respect to the payment, or by a U.S. branch of such vehicle.
    (B) Offshore obligations. A withholding agent that makes a payment 
with respect to an offshore obligation may treat a payee as a 
sponsored, closely held investment vehicle if it obtains a written 
statement that indicates that the payee is a sponsored, closely held 
investment vehicle, and provides the sponsoring entity's GIIN, which 
the withholding agent has verified in the manner described in paragraph 
(e)(3) of this section. In the case of a payment of U.S. source FDAP 
income, the written statement must also indicate that the payee is the 
beneficial owner and must be supplemented with documentary evidence 
supporting the payee's claim of foreign status (as described in 
paragraph (c)(5)(i) of this section).
    (iii) Investment advisors and investment managers.
    (A) In general. A withholding agent may treat a payee as an 
investment advisor and investment manager described in Sec.  1.1471-
5(f)(2)(v) if the withholding agent can reliably associate the payment 
with a withholding certificate that identifies the payee as an 
investment advisor and investment manager. In addition to the standards 
of knowledge rules indicated in paragraph (e) of this section, a 
withholding agent will have reason to know that the payee is not an 
investment advisor and investment manager described in Sec.  1.1471-
5(f)(2)(v) if its AML due diligence documentation indicates that the 
payee has financial accounts.
    (B) Offshore obligations. A withholding agent that makes a payment 
with respect to an offshore obligation may treat a payee as an 
investment advisor and investment manager described in Sec.  1.1471-
5(f)(2)(v) if it obtains a written statement that indicates that the 
payee is an investment advisor and investment manager. In the case of a 
payment of U.S. source FDAP income, the written statement must also 
indicate that the payee is the beneficial owner and must be 
supplemented with documentary evidence supporting the payee's claim of 
foreign status (as described in paragraph (c)(5)(i) of this section).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(6).
    (i) through (vi) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(6)(i) through (vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(6)(vii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(6)(vii)(A).
    (1) The payment is made with respect to an offshore obligation that 
has a balance or value not exceeding $1,000,000 on the later of June 
30, 2014, or the last day of the calendar year in which the account was 
opened, and the last day of each subsequent year preceding the payment, 
applying the aggregation principles of Sec.  1.1471-5(b)(4);
    (2) through (5) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(6)(vii)(A)(2) through (5).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(6)(vii)(B).
    (7) through (10)(iii) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(7) through (d)(10)(iii).
    (11) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(11).
    (i) through (vii)(B)(3) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(11)(i) through (d)(11)(vii)(B)(3).
    (viii) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(11)(viii).
    (A) Exception for payments made prior to January 1, 2017, with 
respect to preexisting obligations of $1,000,000 or less 
(transitional). A withholding agent that makes a payment prior to 
January 1, 2017, with respect to a preexisting obligation with a 
balance or value not exceeding $1,000,000 on June 30, 2014, and 
December 31, 2015, applying the aggregation principles of Sec.  1.1471-
5(b)(4)(iii), may treat a payee as an excepted territory NFFE described 
in Sec.  1.1472-1(c)(1)(iii) if the withholding agent--
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(11)(viii)(A)(1) through (3).

[[Page 12838]]

    (B) through (B)(2) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(11)(viii)(B) through (d)(11)(viii)(B)(2).
    (C) Exception for preexisting offshore obligations of $1,000,000 or 
less. A withholding agent that makes a payment with respect to an 
offshore obligation that is also a preexisting obligation with a 
balance or value not exceeding $1,000,000 on June 30, 2014 (or the 
effective date of the FFI agreement for a withholding agent that is a 
participating FFI) and the last day of each subsequent calendar year 
preceding the payment, applying the aggregation principles of Sec.  
1.1471-5(b)(4)(iii), may rely upon its review conducted for AML due 
diligence purposes to determine whether the owners of the payee are 
bona fide residents of the U.S. territory in which the payee is 
organized, in lieu of obtaining a written statement or documentary 
evidence described in paragraph (d)(11)(viii)(B) of this section. The 
preceding sentence applies only if the withholding agent is subject, 
with respect to such account, to the laws of a FATF-compliant 
jurisdiction and has identified the residence of the owners. The 
withholding agent relying upon this paragraph (d)(11)(viii)(C) must 
still obtain a written statement, documentary evidence (as provided in 
paragraph (d)(11)(viii)(B) of this section), or preexisting account 
documentary evidence (as described in paragraph (c)(5)(ii)(B) of this 
section) establishing that the payee is an entity other than a 
depository institution, custodial institution, or specified insurance 
company organized in a U.S. territory.
    (ix) through (ix)(C) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(11)(ix) through (d)(11)(ix)(C).
    (x) Identifying a direct reporting NFFE--(A) In general. A 
withholding agent may treat a payment as having been made to a direct 
reporting NFFE if it has a withholding certificate that identifies the 
payee as a direct reporting NFFE and the withholding certificate 
contains a GIIN for the payee that is verified against the published 
IRS FFI list in the manner described in paragraph (e)(3)(iii) of this 
section (indicating when a withholding agent may rely upon a GIIN).
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payment as made to a direct reporting NFFE if the withholding agent 
has--
    (1)(i) General documentary evidence (as described in paragraph 
(c)(5)(ii)(A) of this section) for the payee providing sufficient 
information to determine that the payee is a foreign entity that is not 
a financial institution; or
    (ii) A written statement that the payee is a foreign entity that is 
not a financial institution and, for a payment of U.S. source FDAP 
income, documentary evidence supporting the payee's claim of foreign 
status (as described in paragraph (c)(5)(i) of this section), and
    (2) Received (either orally or in writing) a GIIN from the direct 
reporting NFFE and has verified the GIIN in the manner described in 
paragraph (e)(3)(iii) of this section.
    (C) Special rule for preexisting offshore obligations. A 
withholding agent that makes a payment with respect to an offshore 
obligation that is also a preexisting obligation may treat the payee as 
a direct reporting NFFE if the withholding agent has preexisting 
account documentary evidence (as described in paragraph (c)(5)(ii)(B) 
of this section) providing sufficient information to determine that the 
payee is a foreign entity that is not a financial institution and it 
has received (either orally or in writing) a GIIN from the direct 
reporting NFFE and has verified the GIIN in the manner described in 
paragraph (e)(3)(iii) of this section.
    (xi) Identifying a sponsored direct reporting NFFE--(A) In general. 
A withholding agent may treat a payment as having been made to a 
sponsored direct reporting NFFE if it has a withholding certificate 
that identifies the payee as a sponsored direct reporting NFFE and the 
withholding certificate includes the sponsored direct reporting NFFE's 
GIIN, which the withholding agent has verified against the published 
IRS FFI list in the manner described in paragraph (e)(3)(iv) of this 
section (indicating when a withholding agent may rely upon a GIIN). For 
payments prior to January 1, 2016, a sponsored direct reporting NFFE 
may provide the GIIN of its sponsoring entity on the withholding 
certificate if the sponsored direct reporting NFFE has not obtained a 
GIIN.
    (B) Exception for offshore obligations. A withholding agent that 
makes a payment with respect to an offshore obligation may treat the 
payment as made to a sponsored direct reporting NFFE if the withholding 
agent has--
    (1) A written statement that the payee is a foreign entity that is 
a sponsored direct reporting NFFE and, for a payment of U.S. source 
FDAP income, documentary evidence supporting the payee's claim of 
foreign status (as described in paragraph (c)(5)(i) of this section), 
and
    (2) Received (either orally or in writing) the GIIN of the 
sponsored direct reporting NFFE and has verified the GIIN in the manner 
described in paragraph (e)(3)(iv) of this section. For payments prior 
to January 1, 2016, such requirement may be fulfilled by receiving 
(either orally or in writing) the GIIN of the sponsoring entity to the 
extent that the sponsored direct reporting NFFE has not obtained a 
GIIN.
    (xii) Identification of excepted inter-affiliate FFI.
    (A) In general. A participating FFI may treat a payee as an 
excepted inter-affiliate FFI described in Sec.  1.1471-5(e)(5)(iv) if 
it has obtained a withholding certificate identifying the payee as such 
an entity.
    (B) Offshore obligations. A participating FFI that makes a payment 
with respect to an offshore obligation may treat the payment as made to 
an excepted inter-affiliate FFI described in Sec.  1.1471-5(e)(5)(iv) 
if the participating FFI obtains a written statement in which the payee 
certifies that it is a foreign entity operating as an excepted inter-
affiliate FFI and that it is a member of an expanded affiliated group 
of participating FFIs or registered deemed-compliant FFIs. In the case 
of a payment of U.S. source FDAP income, the written statement must 
also indicate that the payee is the beneficial owner and must be 
supplemented with documentary evidence (as described in Sec.  1.1471-
3(c)(5)(i)) that provides the participating FFI with sufficient 
information to establish that the payee is an excepted inter-affiliate 
FFI described in Sec.  1.1471-5(e)(5)(iv).
    (C) Reason to know. A participating FFI has reason to know that an 
entity is not an excepted inter-affiliate FFI if it makes any payments 
(other than a payment of bank deposit interest) to such entity.
    (12) [Reserved]. For further guidance, see Sec.  1.1471-3(d)(12).
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1471-3(d)(12)(i) through (ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
3(d)(12)(iii).
    (A) In general. A passive NFFE will be required to provide to the 
withholding agent either a written certification (contained on a 
withholding certificate or in a written statement) that it does not 
have any substantial U.S. owners or the name, address, and TIN of each 
substantial U.S. owner of the NFFE, to avoid being withheld upon under 
Sec.  1.1472-1(b).
    (B) Exception for preexisting obligations of $1,000,000 or less 
(transitional). A withholding agent that makes a payment prior to 
January 1, 2017, with respect to a preexisting obligation with a 
balance or value not exceeding $1,000,000 on June 30, 2014,

[[Page 12839]]

and December 31, 2015, applying the aggregation principles of Sec.  
1.1471-5(b)(4)(iii), may rely upon its review conducted for AML due 
diligence purposes to identify any substantial U.S. owners of the payee 
in lieu of obtaining the certification or information required in 
paragraph (d)(12)(iii)(A) of this section if the withholding agent is 
subject, with respect to such obligation, to the laws of a FATF-
compliant jurisdiction and has identified the residence of any 
controlling persons (within the meaning of the withholding agent's AML 
due diligence rules). A withholding agent that makes a payment with 
respect to an offshore obligation that is also a preexisting obligation 
with a balance or value not exceeding $1,000,000 on June 30, 2014, (or 
the effective date of the FFI agreement for a withholding agent that is 
a participating FFI) and the last day of each subsequent calendar year 
preceding the payment, applying the aggregation principles of Sec.  
1.1471-5(b)(4)(iii), may rely upon its review conducted for AML due 
diligence purposes to identify any substantial U.S. owners of the payee 
in lieu of obtaining the certification or information required in 
paragraph (d)(12)(iii)(A) of this section if the withholding agent is 
subject, with respect to such obligation, to the laws of a FATF-
compliant jurisdiction and has identified the residence of any 
controlling persons (within the meaning of the withholding agent's AML 
due diligence rules).
    (e) [Reserved]. For further guidance, see Sec.  1.1471-3(e).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-3(e)(1).
    (2) Notification by the IRS. A withholding agent that has received 
notification by the IRS that a claim of status as a U.S. person, a 
participating FFI, a deemed-compliant FFI, or other entity entitled to 
a reduced rate of withholding under section 1471 or 1472 is incorrect 
knows that such a claim is incorrect beginning on the date that is 30 
days after the date the notice is received.
    (3) GIIN verification.
    (i) In general. A withholding agent that has received a payee's 
claim of status as a participating FFI or registered deemed-compliant 
FFI, and that is required under paragraph (d)(4) of this section to 
confirm that the FFI or branch thereof (including an entity that is 
disregarded as an entity separate from the FFI) claiming status as a 
participating FFI or registered deemed-compliant FFI has a GIIN that 
appears on the published IRS FFI list, has reason to know that such 
payee is not such a financial institution if the payee's name 
(including a name reasonably similar to the name the withholding agent 
has on file for the payee) and GIIN do not appear on the most recently 
published IRS FFI list within 90 days of the date that the claim is 
made. For purposes of this paragraph (e)(3)(i), the GIIN that the 
withholding agent must confirm is, with respect to a payee that is a 
participating FFI or registered deemed-compliant FFI, the GIIN assigned 
to the FFI identifying its country of residence for tax purposes (or 
place of organization if the FFI has no country of residence) or, with 
respect to a payment that is made to a branch of, or an entity that is 
disregarded as an entity separate from, a participating FFI or 
registered deemed-compliant FFI located outside of the FFI's country of 
residence or organization, the GIIN assigned to the FFI identifying the 
country in which the branch or disregarded entity receiving the payment 
is located. The withholding agent will have reason to know that a 
withholdable payment is made to a limited branch (including a 
disregarded entity) of a participating or registered deemed-compliant 
FFI when it is directed to make the payment to an address in a 
jurisdiction other than that of the participating FFI or registered 
deemed-compliant FFI (or branch of, or disregarded entity wholly owned 
by, such FFI) that is identified as the FFI (or branch of, or 
disregarded entity wholly owned by, such FFI) that is supposed to 
receive the payment and for which the FFI's GIIN is not confirmed as 
described in the preceding sentence. For example, if a participating 
FFI has identified Branch A, located in Jurisdiction A, as its branch 
to receive withholdable payments on a withholding certificate described 
in Sec.  1.1471-3(e)(3)(ii), but subsequently directs the withholding 
agent to make the payment to an address of the FFI in Jurisdiction B, 
then the withholding agent will have reason to know that the payment is 
made to a limited branch, unless the withholding agent obtains 
documentation to treat the payment to the address in Jurisdiction B as 
made to a payee that is a participating FFI or deemed-compliant FFI. An 
FFI whose registration with the IRS as a participating FFI or a 
registered deemed-compliant FFI is in process but has not yet received 
a GIIN may provide a withholding agent with a Form W-8 claiming the 
chapter 4 status it applied for and writing ``applied for'' in the box 
for the GIIN. In such case, the withholding agent will have 90 days 
from the date it receives the Form W-8 to obtain a GIIN and to verify 
the accuracy of the GIIN against the published IRS FFI list before it 
has reason to know that the payee is not a participating FFI or 
registered deemed-compliant FFI. If an FFI is removed from the 
published IRS FFI list, the withholding agent knows that such FFI is 
not a participating FFI or registered deemed-compliant FFI on the 
earlier of the date that the withholding agent discovers that the FFI 
has been removed from the list or the date that is one year from the 
date the FFI's GIIN was actually removed from the list.
    (ii) Special rules for reporting Model 1 FFIs. Prior to January 1, 
2015, a withholding agent that receives an FFI's claim of status as a 
reporting Model 1 FFI will not be required to confirm that the FFI has 
a GIIN that appears on the published IRS FFI list. A withholding agent 
has reason to know that the FFI is not a reporting Model 1 FFI if the 
withholding agent does not have a permanent residence address for the 
FFI, or an address of the relevant branch of the FFI, located in the 
country in which the FFI claims to be a reporting Model 1 FFI, or the 
withholding agent is making a payment to a branch of the FFI at an 
address in a country that does not have in effect a Model 1 IGA.
    (iii) Special rules for direct reporting NFFEs. A withholding agent 
that has received a payee's claim of status as a direct reporting NFFE 
and that is required under paragraph (d)(11)(x) of this section to 
confirm that the entity claiming status as a direct reporting NFFE has 
a GIIN that appears on the published IRS FFI list, has reason to know 
that such payee is not such a NFFE if the payee's name (including a 
name reasonably similar to the name the withholding agent has on file 
for the payee) and GIIN do not appear on the most recently published 
IRS FFI list within 90 days of the date that the claim is made. A payee 
whose registration with the IRS as a direct reporting NFFE is in 
process but has not yet received a GIIN may provide a withholding agent 
with a Form W-8 claiming the chapter 4 status it applied for and 
writing ``applied for'' in the box for the GIIN. In such case, the 
withholding agent will have 90 days from the date it receives the Form 
W-8 to verify the accuracy of the GIIN against the published IRS FFI 
list before it has reason to know that the payee is not a direct 
reporting NFFE. If a direct reporting NFFE is removed from the 
published IRS FFI list, the withholding agent knows that such NFFE is 
not a direct reporting NFFE on the earlier of the date that the 
withholding agent discovers that the NFFE has been removed from the 
list or the date that is one year from the date the NFFE's GIIN was 
actually removed from the list.

[[Page 12840]]

    (iv) Special rules for sponsored direct reporting NFFEs and 
sponsoring entities--(A) Sponsored direct reporting NFFEs. A 
withholding agent that has received a payee's claim of status as a 
sponsored direct reporting NFFE and that is required under paragraph 
(d)(11)(xi) of this section to confirm that the entity claiming status 
as a sponsored direct reporting NFFE has a GIIN that appears on the 
published IRS FFI list, has reason to know that such payee is not such 
a NFFE if its name (including a name reasonably similar to the name the 
withholding agent has on file for the payee) and GIIN do not appear on 
the most recently published IRS FFI list within 90 days of the date 
that the claim is made. A sponsored direct reporting NFFE whose 
registration with the IRS as a sponsored direct reporting NFFE is in 
process but has not yet received a GIIN may provide a withholding agent 
with a Form W-8 claiming the chapter 4 status it applied for and 
writing ``applied for'' in the box for the GIIN. In such case, the 
withholding agent will have 90 days from the date it receives the Form 
W-8 to verify the accuracy of the GIIN against the published IRS FFI 
list before it has reason to know that the payee is not a sponsored 
direct reporting NFFE. If a sponsored direct reporting NFFE is removed 
from the published IRS FFI list, the withholding agent knows that such 
NFFE is not a sponsored direct reporting NFFE on the earlier of the 
date that the withholding agent discovers that the sponsored entity has 
been removed from the list or the date that is one year from the date 
the sponsored entity's GIIN was actually removed from the list.
    (B) Sponsoring entities (transitional rule). For payments made 
prior to January 1, 2016, a withholding agent that has received a 
payee's claim of status as a sponsored direct reporting NFFE has reason 
to know that such payee is not such a NFFE if the name of its 
sponsoring entity (including a name reasonably similar to the name the 
withholding agent has on file for the sponsoring entity) and the GIIN 
of its sponsoring entity do not appear on the most recently published 
IRS FFI list within 90 days of the date that the claim is made. A 
sponsoring entity whose registration with the IRS is in process but has 
not yet received a GIIN may provide a withholding agent with a Form W-8 
claiming the chapter 4 status it applied for and writing ``applied 
for'' in the box for the GIIN. In such case, the withholding agent will 
have 90 days from the date it receives the Form W-8 to verify the 
accuracy of the GIIN against the published IRS FFI list before it has 
reason to know that the payee is not a sponsored direct reporting NFFE. 
If the sponsoring entity of the NFFE is removed from the published IRS 
FFI list, the withholding agent knows that such NFFE is not a sponsored 
direct reporting NFFE on the earlier of the date that the withholding 
agent discovers that the sponsoring entity has been removed from the 
list or the date that is one year from the date the sponsoring entity's 
GIIN was actually removed from the list.
    (4) Reason to know. A withholding agent has reason to know that a 
claim of chapter 4 status is unreliable or incorrect if its knowledge 
of relevant facts or statements contained in the withholding 
certificate or other documentation is such that a reasonably prudent 
person in the position of the withholding agent would question the 
claim being made. For an obligation other than a preexisting 
obligation, a withholding agent has reason to know that a person's 
claim of chapter 4 status is unreliable or incorrect if any information 
contained in its account opening files or other customer account files, 
including documentation collected for AML due diligence purposes, 
conflicts with the chapter 4 status being claimed. A withholding agent 
will not, however, have reason to know that a person's claim of chapter 
4 status is unreliable or incorrect based on documentation collected 
for AML due diligence purposes until the date that is 30 days after the 
obligation is created. In addition to the specific standards of 
knowledge set forth in this paragraph (e) regarding a person's claim of 
chapter 4 status, a withholding agent is also required to apply any 
specific standards of knowledge applicable to the chapter 4 status 
claimed as set forth in paragraph (d) of this section. A withholding 
agent that has obtained documentation to reliably associate a payment 
to a foreign person under paragraph (c) of this section has reason to 
know that the person's claim of foreign status is unreliable or 
incorrect only to the extent provided in this paragraph (e)(4). See 
also Sec.  1.1441-1(e)(4)(ii)(D) for requirements that apply when a 
change in circumstances occurs for purposes of chapter 3 and the 
related grace period allowed under Sec.  1.1441-1(b)(3)(iv). The limits 
on reason to know for multiple obligations held by the same person set 
forth in Sec.  1.1441-7(b)(11) shall apply by substituting the term 
chapter 4 status for the term foreign status. See Sec.  1.1471-
3(e)(4)(vii) for the limits on reason to know with respect to a 
preexisting obligation.
    (i) Reason to know regarding an entity's chapter 4 status. A 
withholding agent has reason to know that a withholding certificate, 
written statement, or documentary evidence provided by or on behalf of 
an entity is unreliable or incorrect if there is information on the 
face of the documentation or in the withholding agent's account files 
that conflicts with the entity's claim regarding its chapter 4 status. 
For example, a withholding agent has reason to know that an entity's 
claim that it is an excepted NFFE is unreliable or incorrect if the 
withholding agent has obtained a financial statement or credit report 
for AML purposes that indicates that the entity is engaged in business 
as a financial institution. See also paragraph (e)(4) of this section 
for the 30-day period before a withholding agent has reason to know a 
claim is unreliable or incorrect based on AML information. Further, a 
withholding agent that has classified an entity as engaged in a 
particular type of business based on its records, such as through the 
use of a standardized industry coding system, has reason to know that 
the chapter 4 status claimed by the entity is unreliable or incorrect 
if the entity's claim conflicts with the withholding agent's 
classification of the entity's business type.
    (ii) Reason to know applicable to withholding certificates.
    (A) In general. A withholding agent has reason to know that a 
withholding certificate provided by a person is unreliable or incorrect 
if the withholding certificate is incomplete with respect to any item 
on the certificate that is relevant to the claims made by the person, 
the withholding certificate contains any information that is 
inconsistent with the person's claim, the withholding agent has other 
account information that is inconsistent with the person's claim, or 
the withholding certificate lacks information necessary to establish 
entitlement to an exemption from withholding for chapter 4 purposes. 
Except as otherwise provided in this paragraph (e)(4)(ii)(A), a 
withholding agent that has obtained a withholding certificate to 
reliably associate a payment to a foreign person under paragraph (c) of 
this section has reason to know that the person's claim of foreign 
status is unreliable or incorrect only if there are U.S. indicia, as 
described in Sec.  1.1441-7(b)(5), associated with the person and for 
which appropriate documentation sufficient to cure the U.S. indicia has 
not been obtained in accordance with Sec.  1.1441-7(b) within 90 days 
of when the U.S. indicia was first identified by the withholding agent. 
See also Sec.  1.1441-1(e)(4)(ii)(D) for requirements

[[Page 12841]]

that apply when a change in circumstances occurs for purposes of 
chapter 3 and the related grace period allowed under Sec.  1.1441-
1(b)(3)(iv). A withholding agent that relies on an agent to review and 
maintain a withholding certificate is considered to know or have reason 
to know the facts within the knowledge of the agent.
    (B) Withholding certificate provided by an FFI. A withholding agent 
that obtains a withholding certificate to reliably associate a payment 
to a participating FFI, a registered deemed-compliant FFI, a sponsoring 
entity, or a sponsored FFI does not need to apply the standards of 
knowledge described in Sec.  1.1441-7(b)(5) if it has confirmed the 
FFI's GIIN on the current published IRS FFI list, in the manner 
described under paragraph (e)(3) of this section, within 90 days of 
receipt of the withholding certificate.
    (iii) Reason to know applicable to written statements. A 
withholding agent must apply the standards of knowledge applicable to 
withholding certificates, as set forth in paragraph (e)(4)(ii) of this 
section, to determine whether it has reason to know that a written 
statement is unreliable or incorrect in terms of establishing a 
person's claim of foreign status. The rules under paragraph (e)(4)(ii) 
shall be applied by substituting the term written statement for 
withholding certificate.
    (iv) Reason to know applicable to documentary evidence.
    (A) In general. A withholding agent may not treat documentary 
evidence provided by a person as valid if the documentary evidence does 
not reasonably establish the identity of the person presenting the 
documentary evidence. For example, documentary evidence is not valid if 
it is provided in person by an individual and the photograph or 
signature on the documentary evidence does not match the appearance or 
signature of the person presenting the document. A withholding agent 
may not treat documentary evidence as valid if the documentary evidence 
contains information that is inconsistent with the person's claim as to 
its chapter 4 status, the withholding agent has other account 
information that is inconsistent with the person's chapter 4 status, or 
the documentary evidence lacks information necessary to establish the 
person's chapter 4 status. Additionally, a withholding agent that has 
obtained documentary evidence to reliably associate a payment to a 
foreign person under paragraph (c) of this section has reason to know 
that the person's claim of foreign status is unreliable or incorrect 
only if there are U.S. indicia, as described in Sec.  1.1441-7(b)(8), 
associated with the person and appropriate documentation sufficient to 
cure the U.S. indicia has not been obtained in accordance with Sec.  
1.1441-7(b) within 90 days of when the U.S. indicia was first 
identified by the withholding agent. See also Sec.  1.1441-
1(e)(4)(ii)(D) for requirements when a change in circumstances occurs 
for purposes of chapter 3 and the related grace period allowed under 
Sec.  1.1441-1(b)(3)(iv).
    (B) Standards of knowledge applicable to certain types of 
documentary evidence--(1) Financial statement. A withholding agent that 
obtains a financial statement for purposes of establishing that a 
foreign payee meets a certain asset threshold has reason to know that 
the chapter 4 status claimed is unreliable or incorrect only if the 
total assets shown on the financial statement for the payee, and if 
relevant the payee's expanded affiliated group, are not within the 
permissible thresholds, or the footnotes to the financial statement 
indicate that the payee is not a foreign entity or is not a type of FFI 
eligible for the chapter 4 status claimed. A withholding agent that 
obtains a financial statement for purposes of establishing that the 
payee is an active NFFE will be required to review the balance sheet 
and income statement to determine whether the payee meets the income 
and asset thresholds set forth in Sec.  1.1472-1(c)(1)(iv) and the 
footnotes of the financial statement for an indication that the payee 
is not a foreign entity or is a financial institution. A withholding 
agent that obtains a financial statement for purposes of establishing a 
chapter 4 status for a payee that does not require the payee to meet an 
asset or income threshold will be required to review only the footnotes 
to the financial statement to determine whether the financial statement 
supports the claim of chapter 4 status. A withholding agent that is not 
relying upon a financial statement to establish the chapter 4 status of 
the payee (for example because it has other documentation that 
establishes the payee's chapter 4 status) is not required to 
independently evaluate the financial statement solely because the 
withholding agent also has collected the financial statement in the 
course of its account opening or other procedures.
    (2) Organizational documents. A withholding agent that obtains 
organizational documents for a payee solely for the purpose of 
supporting the chapter 4 status claimed by the entity will only be 
required to review the document sufficiently to establish that the 
entity is a foreign person and that the purposes for which the entity 
was formed and its basic activities appear to be of a type consistent 
with the chapter 4 status claimed, unless otherwise specified in 
paragraph (d) of this section. A withholding agent that obtains 
organizational documents for the purpose of establishing that an entity 
has a particular chapter 4 status will only be required to review the 
document to the extent needed to establish that the entity is a foreign 
person, that the requirements applicable to the particular chapter 4 
status are met, and that the document was executed, but will not be 
required to review the remainder of the document.
    (v) Specific standards of knowledge applicable when only 
documentary evidence is a code or classification described in paragraph 
(c)(5)(ii)(B) of this section. A withholding agent may not rely upon a 
classification described in paragraph (c)(5)(ii)(B) of this section or 
a standardized industry coding system to treat an entity as having a 
foreign status if there are U.S. indicia described in paragraph 
(e)(4)(v)(A) of this section associated with the entity, unless such 
U.S. indicia are cured in the manner set forth in paragraph 
(e)(4)(v)(B) of this section.
    (A) through (A)(7) [Reserved]. For further guidance, see Sec.  
1.1471-3(e)(4)(v)(A) through (e)(4)(v)(A)(7).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(v)(B).
    (1) If there are U.S. indicia described in paragraphs 
(e)(4)(v)(A)(1) through (4) of this section associated with the entity, 
the withholding agent may treat the entity as a foreign person only if 
the withholding agent obtains a withholding certificate for the entity 
and one form of documentary evidence, described in paragraph (c)(5) of 
this section, that establishes the entity's status as a foreign person 
(such as a certificate of incorporation).
    (2) If there are U.S. indicia described in paragraphs 
(e)(4)(v)(A)(1) through (4) of this section associated with the entity 
and the withholding agent is making a payment with respect to an 
offshore obligation, the withholding agent may also treat the entity as 
a foreign person if the withholding agent obtains a withholding 
certificate for the entity and the withholding agent treats the entity 
as foreign for purposes of foreign tax reporting. A withholding agent 
will treat an entity as foreign for purposes of foreign tax reporting 
only if the withholding agent classifies the entity as a resident of 
the country in which the obligation is maintained, the withholding 
agent is required to report a payment made to the entity annually

[[Page 12842]]

on a tax information statement that is filed with the tax authority of 
the country in which the account is maintained as part of that 
country's resident reporting requirements, and that country has a tax 
information exchange agreement or income tax treaty in effect with the 
United States.
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(v)(B)(3).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(vi).
    (A) through (A)(2) [Reserved]. For further guidance, see Sec.  
1.1471-3(e)(4)(vi)(A) through (e)(4)(vi)(A)(2).
    (B) Limits on reason to know with respect to documentation received 
from participating FFIs and registered deemed-compliant FFIs that are 
intermediaries or flow-through entities. A withholding agent that 
receives documentation from a participating FFI or registered deemed-
compliant FFI that is not the payee must apply the requirements of 
paragraph (e)(4)(vi)(A) of this section, except that the withholding 
agent may rely upon the chapter 4 status provided by the participating 
FFI or registered deemed-compliant FFI in the withholding statement 
unless the withholding agent has information that conflicts with the 
chapter 4 status provided. If underlying documentation is provided for 
the payee and information in the documentation or in the withholding 
agent's records conflicts with the chapter 4 status claimed, the 
withholding agent has reason to know that the chapter 4 status claimed 
is unreliable or incorrect. A withholding agent is not, however, 
required to verify information contained in documentation provided by 
an intermediary or flow-through entity that is a participating FFI or 
registered deemed-compliant FFI that is not facially incorrect and is 
not required to obtain supporting documentation for the payee in 
addition to a withholding certificate unless the withholding agent 
obtains such documentation for purposes of chapters 3 or 61 or unless 
the withholding agent knows that the review conducted by the 
participating FFI or registered deemed-compliant FFI for purposes of 
chapter 4 was not adequate. For example, a withholding agent that 
receives a withholding statement from a participating FFI that is an 
intermediary stating that the payee is a registered deemed-compliant 
FFI is only required to determine that any withholding certificate 
provided for the payee contains a GIIN and that the GIIN does not 
appear to be facially invalid (for example, because it does not contain 
the correct amount of digits), but is not subject to the requirements 
set forth in paragraph (e)(3) of this section. Similarly, a withholding 
agent that receives from a participating FFI that is a partnership a 
withholding statement claiming that the payee is an active NFFE has 
reason to know that the claim is unreliable or incorrect if it receives 
a withholding statement that contains a U.S. address for the payee 
unless the partnership also provides a copy of documentation sufficient 
to cure the U.S. indicia in the manner set forth in paragraph (e) of 
this section or the withholding statement indicates that appropriate 
documentation sufficient to cure the U.S. indicia in the manner set 
forth in paragraph (e) of this section has been obtained and provides 
details of such documentation, such as the type of documentation and an 
identification number of the person contained in the document.
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(vii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(vii)(A).
    (B) Reason to know there are U.S. indicia associated with 
preexisting obligations. With respect to a preexisting obligation, a 
withholding agent may apply the limits on reason to know described in 
Sec.  1.1441-7(b)(3)(ii) for a person that the withholding agent has 
previously documented for purposes of chapters 3 or 61 (applied without 
regard to the fact that section 1441 generally applies to reportable 
amounts under chapter 3 and without regard to whether the person was so 
documented before July 1, 2014). A withholding agent that applies the 
limits on reason to know described in Sec.  1.1441-7(b)(3)(ii) must, 
however, review for U.S. indicia any additional documentation upon 
which the withholding agent is relying to determine the chapter 4 
status of the person, if any.
    (viii) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(viii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(viii)(A).
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(viii)(A)(1) through (3).
    (4) Is a spouse or unmarried child under the age of 21 years of an 
individual described in one of the paragraphs (e)(4)(viii)(A)(1) 
through (3) of this section;
    (B) through (D) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(4)(viii)(B) through (D).
    (5) through (6) [Reserved]. For further guidance, see Sec.  1.1471-
3(e)(5) through (6).
    (f) [Reserved]. For further guidance, see Sec.  1.1471-3(f).
    (1) In general. A withholding agent that cannot, prior to the 
payment, reliably associate (within the meaning of paragraph (c) of 
this section) the payment with valid documentation may rely on the 
presumptions of this paragraph (f) to determine the status of the payee 
(or other person receiving the payment) as a U.S. or foreign person and 
such person's other relevant characteristics (for example, as a 
nonparticipating FFI). Paragraph (f)(2) of this section provides the 
presumption rules with respect to classification as an individual or 
entity. Paragraph (f)(3) of this section provides the presumption rules 
to determine a payee's U.S. or foreign status. Paragraph (f)(4) of this 
section provides the presumption rules with respect to an entity's 
chapter 4 status. Paragraph (f)(5) of this section provides the 
presumption rules with respect to an intermediary or flow-through 
entity. Paragraph (f)(6) of this section provides the presumption rules 
with respect to effectively connected income paid to a U.S. branch of a 
payee. Paragraph (f)(7) of this section provides the presumption rules 
that apply to a payment made to joint payees. Paragraph (f)(8) of this 
section provides rules for how a payee may rebut the presumptions 
described in this paragraph (f). Paragraph (f)(9) of this section 
provides the consequences to a withholding agent that fails to withhold 
in accordance with the presumptions set forth in this paragraph (f) or 
that has actual knowledge or reason to know facts that are contrary to 
the presumptions set forth in this paragraph (f).
    (2) Presumptions of classification as an individual or entity and 
entity as the beneficial owner. A withholding agent that cannot 
reliably associate a payment with a valid withholding certificate, or 
that has received valid documentary evidence (as described in paragraph 
(c)(5) of this section), but cannot determine a payee's status as an 
individual or an entity from the documentary evidence, must apply the 
presumption rules of Sec.  1.1441-1(b)(3)(ii) to determine the payee's 
classification as an individual, trust, partnership, corporation, 
intermediary, or flow-through entity. Additionally, a withholding agent 
that receives valid documentary evidence with respect to an entity must 
apply the rules under Sec.  1.1441-1(b)(3)(ii) to determine when it may 
treat such entity as a beneficial owner.
    (3) Presumptions of U.S. or foreign status. If a withholding agent 
cannot reliably associate a payment with a valid withholding 
certificate or valid documentary evidence from which it is possible to 
determine the payee's U.S. or foreign status, it must apply the

[[Page 12843]]

presumption rules of Sec.  1.1441-1(b)(3)(iii) to determine the U.S. or 
foreign status of the payee (substituting the term withholdable payment 
for the term payment). In the case of a payment that a withholding 
agent can reliably associate with valid documentation that indicates 
the payment is made to a U.S. person but does not indicate whether the 
person is a specified U.S. person, the payment will be presumed made to 
a specified U.S. person unless the withholding agent can apply the 
presumption rules of Sec.  1.6049-4(c)(1)(ii)(B), (C), (D), (E), (I), 
(J), (K), (L), or (N), to presume that the person is other than a 
specified U.S. person, or the person's name reasonably indicates that 
the person is a bank (for example because it contains the word Bank or 
a foreign equivalent).
    (4) Presumption of chapter 4 status for a foreign entity. If a 
withholding agent cannot reliably associate a valid withholding 
certificate or valid documentary evidence sufficient to determine the 
chapter 4 status of the entity receiving payment under paragraph (d) of 
this section (for example, as a participating FFI, nonparticipating 
FFI, or NFFE), it must presume that the entity is a nonparticipating 
FFI.
    (5) Presumption of chapter 4 status of payee with respect to a 
payment to an intermediary or flow-through entity. If a withholding 
agent makes a payment to a foreign flow-through entity or intermediary, 
including a payment that it is required to treat as made to such an 
entity under paragraphs (f)(2) and (3) of this section, and cannot 
reliably associate such payment with valid documentation under 
paragraph (c) of this section, the withholding agent must presume that 
the payment is made to a nonparticipating FFI.
    (6) Presumption of effectively connected income for payments to 
certain U.S. branches. A withholding agent that makes a payment to a 
U.S. branch described in this paragraph (f)(6) may presume, in the 
absence of documentation indicating otherwise, that the U.S. branch is 
the payee of a payment that is effectively connected with the conduct 
of a trade or business in the United States if the withholding agent 
has obtained an EIN from the U.S. branch (either orally or in writing). 
A U.S. branch is described in this paragraph (f)(6) if it is a U.S. 
branch of a foreign bank subject to regulatory supervision by the 
Federal Reserve Board or a U.S. branch of a foreign insurance company 
required to file an annual statement on a form approved by the National 
Association of Insurance Commissioners with the Insurance Department of 
a State, a Territory, or the District of Columbia. A payment is treated 
as made to a U.S. branch of a foreign bank or foreign insurance company 
if the payment is credited to an account maintained in the United 
States in the name of a U.S. branch of the foreign person, or the 
payment is made to an address in the United States where the U.S. 
branch is located and the name of the U.S. branch appears on documents 
(in written or electronic form) associated with the payment (for 
example, the check mailed or letter addressed to the branch).
    (7) Joint payees--(i) In general. If a withholding agent makes a 
payment to joint payees and cannot reliably associate the payment with 
valid documentation from each payee but all of the joint payees appear 
to be individuals, then the payment is presumed made to an unidentified 
U.S. person. If any joint payee does not appear, by its name and other 
information contained in the account file, to be an individual, then 
the entire payment will be treated as made to a nonparticipating FFI. 
However, if one of the joint payees provides a Form W-9 in accordance 
with the procedures described in Sec. Sec.  31.3406(d)-1 through 
31.3406(d)-5, the payment shall be treated as made to that payee.
    (ii) Exception for offshore obligations. If a withholding agent 
makes a payment outside the United States with respect to an offshore 
obligation held by joint payees and cannot reliably associate a payment 
with valid documentation from each payee but all of the joint payees 
appear to be individuals, then the payment is presumed made to an 
unknown foreign individual if the payment with respect to the offshore 
obligation is made outside the United States (as described in Sec.  
1.6049-5(e)).
    (8) Rebuttal of presumptions. A payee may rebut the presumptions 
described in paragraphs (f)(2) through (7) of this section by providing 
reliable documentation to the withholding agent or, if applicable, to 
the IRS.
    (9) Effect of reliance on presumptions and of actual knowledge or 
reason to know otherwise--(i) In general. Except as otherwise provided 
in this paragraph (f)(9), a withholding agent that withholds on a 
payment under section 1471 or 1472 in accordance with the presumptions 
set forth in this paragraph (f) shall not be liable for withholding 
under this section even if it is later established that the payee has a 
chapter 4 status other than the status presumed. A withholding agent 
that fails to report and withhold in accordance with the presumptions 
described in paragraphs (f)(2) through (7) of this section with respect 
to a payment that it cannot reliably associate with valid documentation 
shall be liable for tax, interest, and penalties. See Sec.  1.1474-1(a) 
for the extent of a withholding agent's liability for failing to 
withhold in accordance with the presumptions described in this 
paragraph (f).
    (ii) Actual knowledge or reason to know that amount of withholding 
is greater than is required under the presumptions or that reporting of 
the payment is required. Notwithstanding the provisions of paragraph 
(f)(9)(i) of this section, a withholding agent that knows or has reason 
to know that the status or characteristics of the person are other than 
what is presumed under this paragraph (f) may not rely on the 
presumptions described in this paragraph (f) to the extent that, if it 
determined the status of the person based on such knowledge or reason 
to know, it would be required to withhold (under this section or 
another withholding provision of the Code) an amount greater than would 
be the case if it relied on the presumptions described in this 
paragraph (f). In such a case, the withholding agent must rely on its 
knowledge or reason to know rather than on the presumptions set forth 
in this paragraph (f). Failure to do so shall result in liability for 
tax, interest, and penalties to the extent described in Sec.  1.1474-
1(a).
    (g) [Reserved]. For further guidance, see Sec.  1.1471-3(g).
    (h) Expiration date. The applicability of this section expires on 
February 28, 2017.
0
Par. 8. Section 1.1471-4 is amended:
0
1. By removing paragraph (d)(3)(v).
0
2. By redesignating paragraphs (d)(3)(vi) through (viii) as paragraphs 
(d)(3)(v) through (vii).
0
3. By adding paragraphs (d)(2)(iii)(C), (d)(2)(ii)(F), and (d)(6)(vii).
0
4. By revising paragraphs (a)(3), (b)(1) through (3), (b)(6), 
(c)(5)(iv)(B)(2)(vi), (c)(5)(iv)(E), (d)(1), (d)(2)(i), (d)(2)(ii)(A), 
(d)(2)(ii)(B)(2), (d)(2)(ii)(E), (d)(2)(iii)(A), (d)(2)(iii)(B) 
introductory text, (d)(3)(ii)(E), (d)(3)(iii)(F), (d)(5)(v) through 
(vi), (d)(7)(i), (d)(7)(ii)(A), (d)(7)(iii), (d)(7)(iv)(A) through (B), 
(d)(8), (d)(9) Example 3, Example 5, and Example 7, (e)(1), (e)(2)(ii), 
(f)(4)(i) through (ii), (g)(1) introductory text, (g)(1)(ii), and 
(g)(2).
0
5. By removing the heading of paragraph (d)(7) and adding introductory 
text to paragraph (d)(7).
    The additions and revisions read as follows:


Sec.  1.1471-4  FFI agreement.

    (a) * * *

[[Page 12844]]

    (3) [Reserved]. For further guidance, see Sec.  1.1471-4T(a)(3).
* * * * *
    (b) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-4T(b)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-4T(b)(2).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-4T(b)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4T(b)(3)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(b)(3)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(b)(3)(iii).
* * * * *
    (6) [Reserved]. For further guidance, see Sec.  1.1471-4T(b)(6).
* * * * *
    (c) * * *
    (5) * * *
    (iv) * * *
    (B) * * *
    (2) * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
4T(c)(5)(iv)(B)(2)(vi).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
4T(c)(5)(iv)(E).
* * * * *
    (d) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(1).
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(2)(i).
    (ii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(ii)(A).
    (B) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(ii)(B)(2).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(ii)(E).
    (F) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(ii)(F).
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(iii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(iii)(B).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(2)(iii)(C).
    (3) * * *
    (ii) * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(3)(ii)(E).
    (iii) * * *
    (F) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(3)(iii)(F).
* * * * *
    (5) * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(5)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(5)(vi).
* * * * *
    (6) * * *
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(6)(vi).
* * * * *
    (7) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(7).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(7)(i).
    (ii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(7)(ii)(A).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(7)(iii).
    (iv) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(7)(iv)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(7)(iv)(B).
    (8) [Reserved]. For further guidance, see Sec.  1.1471-4T(d)(8).
    (9) * * *
    Example 3. [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(9), Example 3.
* * * * *
    Example 5. [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(9), Example 5.
* * * * *
    Example 7. [Reserved]. For further guidance, see Sec.  1.1471-
4T(d)(9), Example 7.
    (e) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-4T(e)(1).
    (2) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(e)(2)(ii).
* * * * *
    (f) * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4T(f)(4)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(f)(4)(ii).
    (g) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-4T(g)(1).
* * * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4T(g)(1)(ii).
* * * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-4T(g)(2).
* * * * *

0
Par. 9. Section 1.1471-4T is added to read as follows:


Sec.  1.1471-4T  FFI Agreement (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1471-4(a).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
4(a)(1) through (2).
    (3) Reporting. A participating FFI is required to report the 
information described in paragraph (d) of this section annually with 
respect to U.S. accounts under section 1471(c) and accounts held by 
recalcitrant account holders. A participating FFI must also comply with 
the filing requirements described in Sec.  1.1474-1(c) and (d) to 
report payments that are chapter 4 reportable amounts paid to 
recalcitrant account holders and nonparticipating FFIs (including the 
transitional reporting of foreign reportable amounts paid to 
nonparticipating FFIs for calendar years 2015 and 2016 described in 
Sec.  1.1471-4(d)(2)(ii)(F)). A participating FFI that is unable to 
obtain a waiver, if required by foreign law, to report an account as 
required under paragraph (d) of this section must close or transfer 
such account within a reasonable period of time as described in 
paragraph (i) of this section.
    (4) through (7) [Reserved]. For further guidance, see Sec.  1.1471-
4(a)(4) through (7).
    (b) [Reserved]. For further guidance, see Sec.  1.1471-4(b).
    (1) In general. Except as otherwise provided in a Model 2 IGA, a 
participating FFI is required to deduct and withhold a tax equal to 30 
percent of any withholdable payment made by such participating FFI to 
an account held by a recalcitrant account holder or to a 
nonparticipating FFI after June 30, 2014, to the extent required under 
paragraph (b)(3) of this section. See paragraph (b)(2) of this section 
for rules for a participating FFI to identify the payee of a payment in 
order to determine whether withholding is required under this paragraph 
(b). See paragraph (b)(4) of this section for the extent of a 
participating FFI's requirement to deduct and withhold tax on a foreign 
passthru payment made by such participating FFI to an account held by a 
recalcitrant account holder or to a nonparticipating FFI. See paragraph 
(b)(5) of this section for the rules for withholding on payments to 
limited branches and limited FFIs. See paragraph (b)(6) for the special 
allowance to set aside in escrow amounts withheld with respect to 
dormant accounts. See paragraph (b)(7) of this section for the 
withholding requirements of certain U.S. branches of participating 
FFIs. See Sec.  1.1471-2 for the exceptions to and special rules for 
withholding and the exclusion from the definitions of the terms 
withholdable payment and foreign passthru payment that applies to any 
payment made under a grandfathered obligation or the gross proceeds 
from the disposition of such an obligation. See Sec.  1.1474-
1(d)(4)(iii)

[[Page 12845]]

for the requirement of participating FFIs to report payments that are 
chapter 4 reportable amounts. See Sec.  1.1474-6 for the coordination 
of withholding on payments under this paragraph (b) with the other 
withholding provisions under the Code.
    (2) Withholding determination. Except as otherwise provided under 
Sec.  1.1471-2 and, with respect to certain preexisting accounts, under 
paragraph (c) of this section, a participating FFI is required to 
determine whether withholding applies at the time a payment is made by 
reliably associating the payment with valid documentation described in 
paragraph (c) of this section for the payee of the payment. For a 
payment made to an account, if the account is held by one or more 
individuals, the payee is each individual account holder. For a payment 
made to an account held by an entity, except as otherwise provided in 
Sec.  1.1471-3(a)(3), the payee is the account holder. If the 
participating FFI makes a withholdable payment to a payee that is an 
entity and the payment is made with respect to an obligation that is 
not an account, except as otherwise provided in Sec.  1.1471-3(a)(3), 
the payee is the person to whom the payment is made. See Sec.  1.1473-
1(a) to determine when a payment is made in the case of a withholdable 
payment. If a participating FFI cannot reliably associate a payment (or 
any portion of a payment) with valid documentation, the rules described 
in paragraph (c) of this section shall apply to determine the chapter 4 
status of the account holder (and payee if other than the account 
holder). Notwithstanding the foregoing, a participating FFI may 
establish after the date of payment that withholding was not required 
to the extent permitted under Sec.  1.1471-3(c)(7) or may apply the 
procedures provided in Sec.  1.1474-2 when overwithholding occurs.
    (3) Satisfaction of withholding requirements.
    (i) In general. A participating FFI that complies with the 
withholding obligations of this paragraph (b) with respect to accounts 
held by recalcitrant account holders and payees that are 
nonparticipating FFIs shall be deemed to satisfy its withholding 
obligations under sections 1471(a) and 1472 with respect to such 
account holders and payees.
    (ii) Withholding not required. A participating FFI that is an NQI, 
NWP, NWT, or that is a QI that elects under section 1471(b)(3) not to 
assume withholding responsibility for a payment and that provides its 
withholding agent with the information necessary to allocate all or a 
portion of the payment to each payee as part of a withholding 
certificate described in Sec.  1.1471-3(c)(3)(iii) will generally not 
be required to withhold under paragraph (b)(1) of this section. See 
Sec.  1.1471-2(a)(2)(ii), however, for the circumstances under which a 
participating FFI that is an NQI, NWP, or NWT has a residual 
withholding responsibility. See also Sec.  1.1471-3(c)(9)(iii)(B) for 
the circumstances under which a participating FFI that is a broker has 
a residual withholding responsibility as an intermediary of the payment 
and may also be liable for any underwithholding that occurs. See 
Sec. Sec.  1.1471-2(a) and 1.1472-1(a)(2)(i) and the QI, WP, or WT 
agreement for the withholding requirements of a participating FFI that 
is a QI, WP, or WT for purposes of chapter 4.
    (iii) Election to withhold under section 3406. A participating FFI 
may elect to satisfy its withholding obligation under paragraph (b)(1) 
of this section with respect to recalcitrant account holders that are 
also U.S. non-exempt recipients subject to backup withholding under 
section 3406 receiving withholdable payments, to the extent that the 
payments also constitute reportable payments, by applying withholding 
under section 3406 at the backup withholding rate to such withholdable 
payments. A participating FFI may make the election described in this 
paragraph only if it complies with the information reporting rules 
under chapter 61 and section 3406. Nothing in this paragraph relieves a 
participating FFI of its requirement to backup withhold under section 
3406 with respect to reportable payments that are not also withholdable 
payments. See Sec.  1.1474-6(f) for the general rule that satisfying 
withholding requirements under chapter 4 will satisfy backup 
withholding requirements under section 3406 for a payment that is both 
a withholdable payment and a reportable payment.
    (4) through (5)(ii) [Reserved]. For further guidance, see Sec.  
1.1471-4(b)(4) through (b)(5)(ii).
    (6) Special rule for dormant accounts. A participating FFI that 
makes a withholdable payment not otherwise subject to withholding under 
chapter 3 or backup withholding under section 3406 to a recalcitrant 
account holder of a dormant account that it maintains must withhold on 
the account for purposes of chapter 4. However, the participating FFI 
may, in lieu of depositing the tax withheld, set aside the amount 
withheld in escrow until the date that the account ceases to be a 
dormant account. In such case, the tax withheld becomes due 90 days 
following the date that the account ceases to be a dormant account if 
the account holder does not provide the documentation required under 
paragraph (c) of this section or becomes refundable to the account 
holder if the account holder provides the documentation required under 
paragraph (c) of this section establishing that withholding does not 
apply. A participating FFI that maintains a dormant account of a 
recalcitrant account holder and that elects to escrow withheld tax 
pursuant to this paragraph (b)(6) may not delegate the responsibility 
to escrow withheld tax to the withholding agent from which it is 
receiving payment. Once a dormant account escheats irrevocably to a 
foreign government under the relevant laws in the jurisdiction in which 
the participating FFI (or branch thereof) operates, the participating 
FFI is no longer required to deposit with the IRS the amount held in 
escrow with respect to the account. See paragraph (d)(6)(ii) of this 
section for the definition of dormant account.
    (7) [Reserved]. For further guidance, see Sec.  1.1471-4(b)(7).
    (c) [Reserved]. For further guidance, see Sec.  1.1471-4(c).
    (1) through (4)(iii)(B) [Reserved]. For further guidance, see Sec.  
1.1471-4(c)(1) through (c)(4)(iii)(B).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-4(c)(5).
    (i) through (iii)(C) [Reserved]. For further guidance, see Sec.  
1.1471-4(c)(5)(i) through (c)(5)(iii)(C).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv)(B).
    (1) through (1)(vii) [Reserved]. For further guidance, see Sec.  
1.1471-4(c)(5)(iv)(B)(1) through (c)(5)(iv)(B)(1)(vii).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv)(B)(2).
    (i) through (v) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv)(B)(2)(i) through (v).
    (vi) Standing instructions to pay amounts. If information required 
to be reviewed with respect to the account contains standing 
instructions to pay amounts from the account to an account maintained 
in the United States for an account holder, the participating FFI must 
retain a record of a withholding certificate and either a form of 
documentary evidence described in Sec.  1.1471-3(c)(5)(i)(A) through 
(C) or a written reasonable explanation (as defined in Sec.  1.1441-
7(b)(12)) establishing the account holder's status as a foreign person.

[[Page 12846]]

    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(5)(iv)(B)(2)(vii).
    (C) through (D)(4)(vi) [Reserved]. For further guidance, see Sec.  
1.1471-4(c)(5)(iv)(C) through (c)(5)(iv)(D)(4)(vi).
    (E) Exception for preexisting individual accounts previously 
documented as held by foreign individuals. A participating FFI that has 
previously obtained documentation from an account holder to establish 
the account holder's status as a foreign individual in order to meet 
its obligations under its QI, WP, or WT agreement with the IRS, or to 
fulfill its reporting obligations as a U.S. payor under chapter 61, is 
not required to perform the electronic search described in paragraph 
(c)(5)(iv)(C) of this section or the enhanced review described in 
paragraph (c)(5)(iv)(D)(3) of this section for such account. 
Additionally, a participating FFI with a U.S. payor as its paying agent 
is not required to perform the electronic search described in paragraph 
(c)(5)(iv)(C) of this section or the enhanced review described in 
paragraph (c)(5)(iv)(D)(3) of this section for an account for which its 
paying agent that is a U.S. payor has previously obtained documentation 
to establish the account holder's status as a foreign individual under 
chapter 61. The participating FFI is required, however, to perform the 
relationship manager inquiry described in paragraph (c)(5)(iv)(D)(2) of 
this section if the account is a high-value account described in 
paragraph (c)(5)(iv)(D)(1) of this section. For purposes of this 
paragraph (c)(5)(iv)(E), a participating FFI has documented an account 
holder's foreign status under chapter 61 if the participating FFI (or 
its paying agent that is a U.S. payor) has retained a record of the 
documentation required under chapter 61 to establish the foreign status 
of an individual and the account received a reportable payment as 
defined under section 3406(b) in any prior year that was properly 
reported in that year. In the case of a participating FFI that is a QI, 
WP, or WT, the participating FFI has documented an account holder's 
foreign status under its QI, WP, or WT agreement (as applicable) if the 
participating FFI has met the relevant documentation and reporting 
requirements of its agreement with respect to an account holder that 
received a reportable amount in any year in which its agreement was in 
effect.
    (6) through (7) [Reserved]. For further guidance, see Sec.  1.1471-
4(c)(6) through (7).
    (d) [Reserved]. For further guidance, see Sec.  1.1471-4(d).
    (1) Scope of paragraph. This paragraph (d) provides rules 
addressing the information reporting requirements applicable to 
participating FFIs with respect to U.S. accounts, accounts held by 
owner-documented FFIs, and recalcitrant account holders. Paragraph 
(d)(2) of this section describes the accounts subject to reporting 
under this paragraph (d), and specifies the participating FFI that is 
responsible for reporting an account or account holder. Paragraph 
(d)(3) of this section describes the information required to be 
reported and the manner of reporting by a participating FFI under 
section 1471(c)(1) with respect to a U.S. account or an account held by 
an owner-documented FFI. Paragraph (d)(4) of this section provides 
definitions of terms applicable to paragraph (d)(3). Paragraph (d)(5) 
of this section describes the conditions for a participating FFI to 
elect to report its U.S. accounts and accounts held by owner-documented 
FFIs under section 1471(c)(2) and the information required to be 
reported under such election. Paragraph (d)(6) of this section provides 
rules for a participating FFI to report its recalcitrant account 
holders. Paragraph (d)(7) of this section provides special transitional 
reporting rules applicable to reports due in 2015 and 2016. Paragraph 
(d)(8) of this section provides the reporting requirements of a 
participating FFI that is a QI, WP, or WT with respect to U.S. 
accounts. See chapter 61 for reporting requirements that may apply to a 
payor that is a participating FFI or registered deemed-compliant FFI 
with respect to payees. See Sec.  301.1474-1(a) for the requirement for 
a financial institution to file the information required under this 
paragraph (d) on magnetic media.
    (2) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(2).
    (i) Accounts subject to reporting. Subject to the rules of 
paragraph (d)(7) of this section, a participating FFI shall report by 
the time and in the manner prescribed in paragraph (d)(3)(vi) of this 
section, the information described in paragraph (d)(3) of this section 
with respect to accounts maintained at any time during each calendar 
year for which the participating FFI is responsible for reporting under 
paragraph (d)(2)(ii) of this section and that it is required to treat 
as U.S. accounts or accounts held by owner-documented FFIs, including 
accounts that are identified as U.S. accounts by the end of such 
calendar year pursuant to a change in circumstances during such year as 
described in paragraph (c)(2)(iii) of this section. Alternatively, a 
participating FFI may elect to report under paragraph (d)(5) of this 
section with respect to such accounts for each calendar year. With 
respect to accounts held by recalcitrant account holders, a 
participating FFI is required to report with respect to each calendar 
year under paragraph (d)(6) of this section and not under paragraph 
(d)(3) or (5) of this section. For separate reporting requirements of 
participating FFIs with respect to foreign reportable amounts and for 
transitional rules for participating FFIs to report certain foreign 
reportable amounts paid to accounts held by nonparticipating FFIs, see 
Sec.  1.1471-4(d)(2)(ii)(F).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(ii).
    (A) In general. Except as otherwise provided in paragraphs 
(d)(2)(ii)(B) through (F) of this section, the participating FFI that 
maintains the account is responsible for reporting the account in 
accordance with the requirements of paragraph (d)(2)(iii), (d)(3), or 
(d)(5) of this section (as applicable) for each calendar year. Except 
as otherwise provided in paragraph (d)(2)(ii)(C) of this section, a 
participating FFI is responsible for reporting accounts held by 
recalcitrant account holders that it maintains in accordance with the 
requirements of paragraph (d)(6) of this section. A participating FFI 
is not required to report the information required under paragraph 
(d)(6) of this section with respect to an account held by a 
recalcitrant account holder of another participating FFI even if that 
other participating FFI holds the account as an intermediary on behalf 
of such account holder and regardless of whether the participating FFI 
is required to report payments made to the recalcitrant account holder 
of such other FFI under Sec.  1.1474-1(d)(4)(iii).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(ii)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(ii)(B)(1).
    (2) If the territory financial institution does not agree to be 
treated as a U.S. person with respect to a withholdable payment, the 
participating FFI must report with respect to each specified U.S. 
person or substantial U.S. owner of an entity that is treated as a 
passive NFFE with respect to which the territory financial institution 
acts as an intermediary and provides the participating FFI with the 
information and documentation required under Sec.  1.1471-
3(c)(3)(iii)(G). The participating FFI shall be treated as having 
satisfied these reporting requirements if it reports with respect to 
each such specified U.S. person or

[[Page 12847]]

substantial U.S. owner of a passive NFFE either--
    (i) The information required by chapter 61 and described in 
paragraph (d)(5)(ii) or (d)(5)(iii) of this section (except account 
number); or
    (ii) The information described in paragraph (d)(3)(ii), 
(d)(3)(iii), or (d)(3)(iv) of this section (except account number and 
account balance or value).
    (C) through (D) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(ii)(C) through (D).
    (E) Requirement to identify the GIIN of a branch that maintains an 
account. A participating FFI may report under paragraph (d)(3) or 
(d)(5) of this section either with respect to all of its U.S. accounts 
and recalcitrant accounts, or separately with respect to any clearly 
identified group of accounts (such as by line of business or the 
location of where the account is maintained). A participating FFI shall 
include the GIIN assigned to the participating FFI or its branches to 
identify the jurisdiction of the FFI or branch that maintains the 
accounts subject to reporting under paragraph (d)(3) or (d)(5) of this 
section. Additionally, a participating FFI shall file with the IRS the 
information required to be reported on accounts that it maintains in 
accordance with the forms and their accompanying instructions provided 
by the IRS. For the definition of a branch that applies for purposes of 
this paragraph (d), see paragraph (e)(2)(ii) of this section.
    (F) Reporting by participating FFIs and registered deemed-compliant 
FFIs (including QIs, WPs, WTs, and certain U.S. branches not treated as 
U.S. persons) for accounts of nonparticipating FFIs (transitional). 
Except as otherwise provided in the instructions to Form 8966, ``FATCA 
Report,'' if a participating FFI or registered deemed-compliant FFI 
(including a QI, WP, WT, or U.S. branch of a participating FFI or 
registered deemed-compliant FFI that is not treated as a U.S. person) 
maintains an account for a nonparticipating FFI (including a limited 
branch and limited FFI treated as a nonparticipating FFI), the 
participating FFI or registered deemed-compliant FFI must report on 
Form 8966 the name and address of the nonparticipating FFI, and the 
aggregate amount of foreign source payments, as described in paragraph 
(d)(4)(iv) of this section, paid to or with respect to each such 
account (foreign reportable amount) for each of the calendar years 2015 
and 2016. If, however, the participating FFI is prohibited under 
domestic law from reporting on a specific payee basis without consent 
from the nonparticipating FFI account holder and the participating FFI 
has not been able to obtain such consent, the participating FFI may 
instead report the aggregate number of accounts held by such non-
consenting nonparticipating FFIs and the aggregate amount of foreign 
reportable amounts paid with respect to such accounts, as described in 
paragraph (d)(4)(iv) of this section, during the calendar year. A 
participating FFI may, in lieu of reporting only foreign reportable 
amounts, report all income, gross proceeds, and redemptions 
(irrespective of the source) paid to the nonparticipating FFI's account 
by the participating FFI during the calendar year. In addition, the 
participating FFI must retain the account statements related to such 
nonparticipating FFI accounts. See paragraphs (d)(6)(iv), (v), (vi) and 
(vii) of this section for rules relating to reporting on recalcitrant 
account holders. Form 8966 shall be filed electronically with the IRS 
on or before March 31 of the year following the end of the calendar 
year to which the form relates.
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(iii).
    (A) Special reporting rule for U.S. payors other than U.S. 
branches. Participating FFIs that are U.S. payors (other than U.S. 
branches) shall be treated as having satisfied the chapter 4 reporting 
requirements described in paragraph (d)(2)(i) of this section with 
respect to accounts that the participating FFI is required to treat as 
U.S. accounts, or accounts held by owner-documented FFIs, if the 
participating FFI reports with respect to each such account either--
    (1) The information required by chapter 61 and described in 
paragraph (d)(5)(ii) or (d)(5)(iii) of this section; or
    (2) The information described in paragraph (d)(3)(ii), (d)(3)(iii), 
or (d)(3)(iv) of this section. However, such participating FFI that is 
required to report on such accounts under chapter 61 is not relieved of 
that obligation.
    (B) Special reporting rules for U.S. branches treated as U.S. 
persons. A U.S. branch of a participating FFI (and reporting Model 1 
FFI) that is treated as a U.S. person shall be treated as having 
satisfied the reporting requirements described in paragraph (d)(2)(i) 
of this section if it reports under--
    (1) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(2)(iii)(B)(1) through (4).
    (C) Special reporting rules for U.S. branches not treated as U.S. 
persons. A U.S. branch of a registered deemed-compliant FFI or limited 
FFI that is not treated as a U.S. person shall be treated as having 
satisfied the reporting requirements described in paragraph (d)(2)(i) 
of this section if it reports the information described in paragraph 
(d)(2)(iii)(B)(1) through (4) of this section with respect to account 
holders of accounts that the U.S. branch is required to treat as U.S. 
accounts or accounts held by owner-documented FFIs.
    (3) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(3)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(ii).
    (A) through (D) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(ii)(A) through (D).
    (E) Such other information as is otherwise required to be reported 
under this paragraph (d)(3) or in the form described in paragraph 
(d)(3)(v) of this section and its accompanying instructions.
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(iii).
    (A) through (E) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(iii)(A) through (E).
    (F) Such other information as is otherwise required to be reported 
under this paragraph (d)(3) or in the form described in paragraph 
(d)(3)(v) of this section and its accompanying instructions.
    (iv) through (iv)(F) [Reserved]. For further guidance, see Sec.  
1.1471-4(d)(3)(iv) through (d)(3)(iv)(F).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(3)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(3)(vii).
    (4) through (4)(v) [Reserved]. For further guidance, see Sec.  
1.1471-4(d)(4) through (d)(4)(v).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(5).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1471-4(d)(5)(i) through (d)(5)(iv).
    (v) Time and manner of making the election. A participating FFI (or 
one or more branches of the participating FFI) may make the election 
described in this paragraph (d)(5) by reporting the information 
described in this paragraph (d)(5) on the form described in paragraph 
(d)(5)(vii) of this section on the next reporting date following the 
end of the calendar year for which the election is made. A 
participating FFI may make an election under this paragraph (d)(5) 
either with respect to all of its U.S. accounts and recalcitrant 
accounts or, separately, with respect to any clearly identified group 
of accounts (such as by line of business or the

[[Page 12848]]

location where the account is maintained).
    (vi) Revocation of election. A participating FFI may revoke the 
election described in paragraph (d)(5)(i) of this section (as a whole 
or with regard to any clearly identified group of accounts) by 
reporting the information described in paragraph (d)(3) of this section 
beginning on the first reporting date with respect to the calendar year 
that follows the calendar year for which it last reports an account 
under this paragraph (d)(5).
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(5)(vii).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(6).
    (i) through (v) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(6)(i) through (v).
    (vi) Extensions in filing. The IRS shall grant an automatic 90-day 
extension of time in which to file Form 8966. Form 8809, ``Request for 
Extension of Time to File Information Returns,'' (or such other form as 
the IRS may prescribe) must be used to request such extension of time 
and must be filed no later than the due date of Form 8966. Under 
certain hardship conditions, the IRS may grant an additional 90-day 
extension. A request for extension due to hardship must contain a 
statement of the reasons for requesting the extension and such other 
information as the forms or instructions may require.
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(6)(vii).
    (7) Special reporting rules with respect to the 2014 and 2015 
calendar years
    (i) In general. If the effective date of the FFI agreement of a 
participating FFI is on or before December 31, 2015, the participating 
FFI is required to report U.S. accounts and accounts held by owner-
documented FFIs that it maintained (or that it is otherwise required to 
report under paragraph (d)(2)(ii) of this section) during the 2014 and 
2015 calendar years in accordance with paragraph (d)(7)(ii) or (iii) of 
this section.
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(7)(ii).
    (A) Reporting with respect to the 2014 calendar year. With respect 
to accounts maintained during the 2014 calendar year--
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(7)(ii)(A)(1) through (3).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(7)(ii)(B).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(7)(ii)(B)(1) through (2).
    (iii) Participating FFIs that report under Sec.  1.1471-4(d)(5). A 
participating FFI that elects to report under paragraph (d)(5) of this 
section may report only the information described in paragraphs 
(d)(7)(ii)(A)(1) and (3) of this section for its 2014 calendar year. 
With respect to its 2015 calendar year, a participating FFI is required 
to report all of the information required to be reported under 
paragraphs (d)(5)(i) through (iii) of this section but may exclude from 
such reporting amounts reportable under section 6045.
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(7)(iv).
    (A) In general. Except as provided in paragraph (d)(7)(iv)(B) of 
this section, reporting under paragraph (d)(7)(ii) of this section 
shall be made on Form 8966 (or such other form as the IRS may 
prescribe), in the manner described in paragraph (d)(3)(vi) of this 
section. Reporting under paragraph (d)(7)(iii) of this section shall be 
made in accordance with paragraph (d)(5)(vii) of this section.
    (B) Special determination date and timing for reporting with 
respect to the 2014 calendar year. With respect to the 2014 calendar 
year, a participating FFI must report under paragraph (d)(3) or (5) of 
this section on all accounts that are identified and documented under 
paragraph (c) of this section as U.S. accounts or accounts held by 
owner-documented FFIs as of December 31, 2014, (or as of the date an 
account is closed if the account is closed prior to December 31, 2014) 
if such account was outstanding on July 1, 2014. Reporting for the 2014 
calendar year shall be filed with the IRS on or before March 31, 2015. 
However, a U.S. payor (including a U.S. branch of a participating FFI 
or registered deemed-compliant FFI that is treated as a U.S. person) 
that reports in accordance with paragraph (d)(2)(iii) of this section 
may report all or a portion of its U.S. accounts and accounts held by 
owner-documented FFIs in accordance with the dates otherwise applicable 
to reporting under chapter 61 with respect to the 2014 calendar year.
    (8) Reporting requirements of QIs, WPs, and WTs. In general, the 
reporting requirements with respect to the U.S. accounts maintained by 
a participating FFI that is a QI, WP, or WT will be consistent with the 
reporting requirements with respect to such accounts of a participating 
FFI that is not a QI, WP, or WT. See the QI, WP, or WT agreement for 
the coordination of the chapter 4 reporting obligations of a 
participating FFI that also is a QI, WP, or WT.
    (9) [Reserved]. For further guidance, see Sec.  1.1471-4(d)(9).

    Example 1.  [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(9), Example 1.
    Example 2. [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(9), Example 2.
    Example 3. U.S. owned foreign entity. FC, a passive NFFE, holds 
a custodial account with PFFI1, a participating FFI. U, a specified 
U.S. person, owns 3% of the only class of stock of FC. Q, another 
specified U.S. person, owns 12% of the only class of stock of FC. U 
is not a substantial U.S. owner of FC. See Sec.  1.1473-1(b). Q is a 
substantial U.S. owner of FC and FC identifies her as such to PFFI1. 
PFFI1 does not elect to report under paragraph (d)(5) of this 
section. PFFI1 must complete and file the reporting form described 
in paragraph (d)(3)(v) of this section and report the information 
described in paragraph (d)(3)(iii) with respect to both FC and Q. 
See paragraph (d)(3)(ii) of this section.
    Example 4. [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(9), Example 4.
    Example 5. Owner-documented FFI. DC, an owner-documented FFI 
under Sec.  1.1471-3(d)(6), holds a custodial account with PFFI1, a 
participating FFI. U, a specified U.S. person, owns 3% of the only 
class of stock of DC. Q, another specified U.S. person, owns 12% of 
the only class of stock of DC. Both U and Q are persons identified 
in Sec.  1.1471-3(d)(6)(iv)(A)(1) and DC identifies U and Q to PFFI1 
and otherwise provides to PFFI1 all of the information required to 
be reported with respect to DC. PFFI1 must complete and file a form 
described in paragraph (d)(3)(v) of this section with regard to U 
and Q. See paragraph (d)(3)(iii) of this section.
    Example 6. [Reserved]. For further guidance, see Sec.  1.1471-
4(d)(9), Example 6.
    Example 7. Sponsored FFI. DC2 is an FFI that has agreed to have 
a sponsoring entity, PFFI1, fulfill DC2's chapter 4 responsibilities 
under Sec.  1.1471-5(f)(2)(iii). U, a specified U.S. person, holds 
an equity interest in DC2 that is a financial account under Sec.  
1.1471-5(b)(3)(iii). PFFI1 must complete and file a form described 
in paragraph (d)(3)(v) of this section with regard to U's account on 
behalf of DC2. See paragraph (d)(2)(ii)(C) of this section.

    (e) [Reserved]. For further guidance, see Sec.  1.1471-4(e).
    (1) In general. Except as otherwise provided in this paragraph 
(e)(1) or paragraphs (e)(2) and (e)(3) of this section, each FFI that 
is a member of an expanded affiliated group must have the chapter 4 
status of a participating FFI, deemed-compliant FFI, or exempt 
beneficial owner as a condition for any member of such group to obtain 
the status of a participating FFI or registered deemed-compliant FFI. 
Accordingly, except as otherwise provided in published guidance, each 
FFI other than a certified deemed-compliant FFI or exempt beneficial 
owner in an expanded affiliated group must submit a registration form 
to the IRS in such manner as the IRS may prescribe requesting an FFI 
agreement, registered deemed-compliant status, or limited FFI

[[Page 12849]]

status as a condition for any member to become a participating FFI or 
registered deemed-compliant FFI. Except as provided in paragraph (e)(2) 
of this section, each FFI other than a certified deemed-compliant FFI 
or exempt beneficial owner that is a member of such group must also 
agree to all of the requirements for the status for which it applies 
with respect to all accounts maintained at all of its branches, 
offices, and divisions. For the withholding requirements of a 
participating FFI with respect to its limited branches and its 
affiliates that are limited FFIs, see paragraph (b)(5) of this section. 
Notwithstanding the foregoing, an FFI (or branch thereof) that is 
treated as a participating FFI or a deemed-compliant FFI pursuant to a 
Model 1 IGA or Model 2 IGA will maintain such status provided that it 
meets the terms for such status pursuant to such agreement.
    (2) [Reserved]. For further guidance, see Sec.  1.1471-4(e)(2).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4(e)(2)(i).
    (A) through (C) [Reserved]. For further guidance, see Sec.  1.1471-
4(e)(2)(i)(A) through (C).
    (ii) Branch defined. For purposes of this section, a branch is a 
unit, business, or office of an FFI that is treated as a branch under 
the regulatory regime of a country or that is otherwise regulated under 
the laws of a country as separate from other offices, units, or 
branches of the FFI and also includes an entity that is disregarded as 
an entity separate from an FFI (including branches maintained by such 
disregarded entity). For purposes of this section, a branch includes a 
unit, business, or office of an FFI located in a country in which it is 
resident, and a unit, business, or office of an FFI located in the 
country in which the FFI is created or organized. All units, 
businesses, and offices of a participating FFI located in a single 
country, and all entities disregarded as entities separate from a 
participating FFI and located in a single country, shall be treated as 
a single branch and may use the same GIIN. An account will be treated 
as maintained by a branch or disregarded entity if the rights and 
obligations of the account holder and the participating FFI with regard 
to such account (including any assets held in the account) are governed 
by the laws of the country of the branch or disregarded entity.
    (iii) through (v) [Reserved]. For further guidance, see Sec.  
1.1471-4(e)(2)(iii) through (v).
    (3) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
4(e)(3) through (4).
    (f) [Reserved]. For further guidance, see Sec.  1.1471-4(f).
    (1) through (3)(iv)(C) [Reserved]. For further guidance, see Sec.  
1.1471-4(f)(1) through (f)(3)(iv)(C).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-4(f)(4).
    (i) General inquiries. The IRS, based upon the information 
reporting forms described in paragraphs (d)(3)(v), (d)(5)(vii), or 
(d)(6)(iv) of this section filed with the IRS for each calendar year, 
may request additional information with respect to the information 
reported on the forms or may request the account statements described 
in paragraph (d)(4)(v) of this section. The IRS may request additional 
information to determine an FFI's compliance with its FFI agreement and 
to assist the IRS with its review of account holder compliance with tax 
reporting requirements.
    (ii) Inquiries regarding substantial non-compliance. If, based on 
the information reporting forms described in paragraphs (d)(3)(v), 
(d)(5)(vii), or (d)(6)(iv) of this section filed with the IRS for each 
calendar year, the certifications made by the responsible officer 
described in paragraph (f)(3) of this section, or any other information 
related to the participating FFI's compliance with its FFI agreement, 
the IRS determines in its discretion that the participating FFI may not 
have substantially complied with the requirements of its FFI agreement, 
the IRS may request from the responsible officer (or designee) 
information necessary to verify the participating FFI's compliance with 
the FFI agreement. The IRS may request, for example, a description or 
copy of the participating FFI's policies and procedures for fulfilling 
the requirements of the FFI agreement, a description of the 
participating FFI's procedures for conducting its periodic review, or a 
copy of any written reports documenting the findings of such review in 
order to evaluate the sufficiency of the participating FFI's compliance 
program and review of such program. The IRS may also request the 
performance of specified review procedures by a person (including an 
external auditor or third-party consultant) that the IRS identifies as 
competent to perform such procedures given the facts and circumstances 
surrounding the FFI's potential failure to comply with the FFI 
agreement. The IRS may make these requests to a sponsoring entity with 
respect to any sponsored FFI.
    (g) [Reserved]. For further guidance, see Sec.  1.1471-4(g).
    (1) Defined. An event of default occurs if a participating FFI 
fails to perform material obligations required with respect to the due 
diligence, verification, withholding, or reporting requirements of the 
FFI agreement or if the IRS determines that the participating FFI has 
failed to substantially comply with the requirements of the FFI 
agreement. An event of default also includes the occurrence of the 
following--
    (i) [Reserved]. For further guidance, see Sec.  1.1471-4(g)(1)(i).
    (ii) Failure to significantly reduce, over a period of time, the 
number of account holders or payees that the participating FFI is 
required to treat as recalcitrant account holders or nonparticipating 
FFIs, as a result of the participating FFI failing to comply with the 
due diligence procedures for the identification and documentation of 
account holders and payees, as set forth in paragraph (c) of this 
section;
    (iii) through (ix) [Reserved]. For further guidance, see Sec.  
1.1471-4(g)(1)(iii) through (ix).
    (2) Notice of event of default. Following an event of default known 
by or disclosed to the IRS, the IRS will deliver to the participating 
FFI a notice of default specifying the event of default. The IRS will 
request that the participating FFI remediate the event of default 
within a specified time period. The participating FFI must respond to 
the notice of default and provide information responsive to an IRS 
request for information or state the reasons why the participating FFI 
does not agree that an event of default has occurred. Taking into 
account the terms of any applicable Model 2 IGA, if the participating 
FFI does not provide a response within the specified time period, the 
IRS may, at its sole discretion, deliver a notice of termination that 
terminates the FFI's participating FFI status. A participating FFI may 
request, within a reasonable period of time, reconsideration of a 
notice of default or notice of termination by written request to the 
Deputy Commissioner (International), LB&I.
    (3) [Reserved]. For further guidance, see Sec.  1.1471-4(g)(3).
    (h) through (j) [Reserved]. For further guidance, see Sec.  1.1471-
4(h) through (j).
    (k) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 10. Section 1.1471-5 is amended:
0
1. By removing paragraphs (a)(3)(ii) (b)(3)(v)(B)(3), and 
(b)(3)(vi)(B)(3).
0
2. By redesignating paragraphs (a)(3)(iii) through (a)(3)(vi) as 
paragraphs (a)(3)(ii) through (a)(3)(v) and paragraph (j) as paragraph 
(l).

[[Page 12850]]

0
3. By adding paragraphs (f)(1)(i)(F)(3)(vii), (f)(2)(v), (j), and (k).
0
4. By revising paragraphs (a)(3)(i), (a)(4)(i), (b)(1)(iii)(B)(2), 
(b)(3)(iv), (b)(3)(v)(A), (b)(3)(v)(B)(1) through (2), (b)(3)(vi), (c), 
(e)(1)(v)(A), (e)(3)(ii), (e)(4)(v) Example 7 through Example 8, 
(e)(5)(i)(A)(3), (e)(5)(i)(B) introductory text, (e)(5)(i)(B)(1), 
(e)(5)(i)(C), (e)(5)(i)(D)(1)(iv) through (v), (e)(5)(iv)(B), 
(f)(1)(i)(A)(6), (f)(1)(i)(B)(1), (f)(1)(i)(B)(3), (f)(1)(i)(C)(2), 
(f)(1)(i)(D)(4) through (6), (f)(1)(i)(D)(7) introductory text, 
(f)(1)(i)(E), (f)(1)(i)(F)(1)(ii), (f)(1)(i)(F)(3)(v) through (vi), 
(f)(1)(i)(F)(5), (f)(1)(ii)(B), (f)(2) introductory text, (f)(2)(i)(B), 
(f)(2)(iii) through (iv), (f)(4)(i), (g)(3)(i)(D), and (i).
    The additions and revisions read as follows:


Sec.  1.1471-5  Definitions applicable to section 1471.

    (a) * * *
    (3) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5T(a)(3)(i).
* * * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5T(a)(4)(i).
* * * * *
    (b) * * *
    (1) * * *
    (iii) * * *
    (B) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(1)(iii)(B)(2).
* * * * *
    (3) * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(3)(iv).
    (v) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(3)(v)(A).
    (B) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(3)(v)(B)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(3)(v)(B)(2).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
5T(b)(3)(vi) through (b)(3)(vi)(B)(2).
* * * * *
    (c) [Reserved]. For further guidance, see Sec.  1.1471-5T(c).
* * * * *
    (e) * * *
    (1) * * *
    (v) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(1)(v)(A).
* * * * *
    (3) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(3)(ii).
* * * * *
    (4) * * *
    (v) * * *

    Example 7. [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(4)(v), Example 7.
    Example 8.  [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(4)(v), Example 8.
* * * * *
    (5) * * *
    (i) * * *
    (A) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(A)(3).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(B)(1).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(C).
    (D) * * *
    (1) * * *
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(D)(1)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(i)(D)(1)(v).
* * * * *
    (iv) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5T(e)(5)(iv)(B).
* * * * *
    (f) * * *
    (1) * * *
    (i) * * *
    (A) * * *
    (6) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(A)(6).
* * * * *
    (B) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(B)(1).
* * * * *
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(B)(3).
    (C) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(C)(2).
* * * * *
    (D) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(D)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(D)(5).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(D)(6).
    (7) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(D)(7).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(E). through (f)(1)(i)(E)(2).
    (F) * * *
    (1) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(F)(1)(ii).
* * * * *
    (3) * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(F)(3)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(F)(3)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(F)(3)(vii).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(i)(F)(5).
    (ii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(1)(ii)(B).
* * * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-5T(f)(2).
    (i) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(2)(i)(B).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(2)(iii) through (f)(2)(iii)(E).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(2)(iv) through (f)(2)(iv)(E).
    (F) [Reserved]. For further guidance, see Sec.  1.1471-
5T(f)(2)(iv)(F).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5T(f)(2)(v) 
through (f)(2)(v)(B).
* * * * *
    (4) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5T(f)(4)(i).
* * * * *
    (g) * * *
    (3) * * *
    (i) * * *
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
5T(g)(3)(i)(D).
* * * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5T(i) 
through (i)(10).
    (j) [Reserved]. For further guidance, see Sec.  1.1471-5T(j).
    (k) [Reserved]. For further guidance, see Sec.  1.1471-5T(k).

0
Par. 11. Section 1.1471-5T is added to read as follows:


Sec.  1.1471-5T  Definitions applicable to section 1471 (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1471-5(a).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(1) through (2).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-5(a)(3).
    (i) In general. Except as otherwise provided in this paragraph 
(a)(3), the account holder is the person listed or identified as the 
holder or owner of the account with the FFI that maintains the account, 
regardless of whether such person is a flow-through entity. Thus, for 
example, except as otherwise provided in paragraph (a)(3)(ii) of this

[[Page 12851]]

section, if a trust (including a simple or grantor trust) or an estate 
is listed as the holder or owner of a financial account, the trust or 
estate is the account holder, rather than its owners or beneficiaries. 
Similarly, except as otherwise provided in this paragraph (a)(3), if a 
partnership is listed as the holder or owner of a financial account, 
the partnership is the account holder, rather than the partners in the 
partnership. In the case of an account held by an entity that is 
disregarded for U.S. federal tax purposes under Sec.  301.7701-
2(c)(2)(i), the account shall be treated as held by the person owning 
such entity. With respect to an account held by an exempt beneficial 
owner, such account is treated as held by an exempt beneficial owner 
only when all payments made to such account would be treated as made to 
an exempt beneficial owner. See Sec.  1.1471-6(h) for when a payment 
derived from certain commercial activities is not treated as made to an 
exempt beneficial owner.
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(3)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(3)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(3)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5(a)(3)(v).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-5(a)(4).
    (i) Exception for certain individual accounts of participating 
FFIs. Unless a participating FFI elects under paragraph (a)(4)(ii) of 
this section not to apply this paragraph (a)(4)(i), the term U.S. 
account shall not include any depository account maintained by such 
financial institution during a calendar year if the account is held 
solely by one or more individuals and, with respect to each holder of 
such account, the aggregate balance or value of all depository accounts 
held by each such individual does not exceed $50,000 as of the end of 
the calendar year or on the date the account is closed. For rules for 
determining the account balance or value, see paragraphs (a)(3)(iii) 
and (b)(4) of this section.
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(4)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5(a)(4)(iii).
    (b) [Reserved]. For further guidance, see Sec.  1.1471-5(b).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-5(b)(1).
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1471-5(b)(1)(i) through (ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii)(B)(1).
    (2) The return earned on the interest is determined, directly or 
indirectly, primarily by reference to one or more investment entities 
described in paragraph (e)(4)(i)(B) or (C) of this section or one or 
more passive NFFEs that are members of the entity's expanded affiliated 
group (as determined under paragraph (b)(3)(vi) of this section);
    (3) through (4) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii)(B)(3) through (4).
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iii)(C) through (b)(1)(iii)(C)(2).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(1)(iv).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-5(b)(2) 
through (b)(2)(vi).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-5(b)(3).
    (i) through (iii) [Reserved]. For further guidance, see Sec.  
1.1471-5(b)(3)(i) through (b)(3)(iii)(B)(3).
    (iv) Regularly traded on an established securities market. To 
determine if debt or equity interests described in paragraph 
(b)(1)(iii) of this section are regularly traded, the principles of 
Sec.  1.1472-1(c)(1)(i)(A)(2)(i) and (ii) shall apply with respect to 
the interests, and the principles of Sec.  1.1472-1(c)(1)(i)(B)(1) 
shall apply for this purpose in the case of an initial public offering 
of such interests. See Sec.  1.1472-1(c)(1)(i)(C) for the definition of 
an established securities market. For purposes of paragraph (b)(1)(iii) 
of this section, an interest is not regularly traded on an established 
securities market if the holder of the interest (excluding a financial 
institution acting as an intermediary) is registered on the books of 
the investment entity. The preceding sentence shall not apply to the 
extent a holder's interest is registered prior to July 1, 2014, on the 
books of the investment entity.
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5(b)(3)(v).
    (A) Equity interest. The value of an equity interest is determined, 
directly or indirectly, primarily by reference to assets that give rise 
(or could give rise) to withholdable payments if the return earned on 
such interest (including upon a sale, exchange, or redemption) is 
determined primarily by reference to profits or assets of a U.S. person 
or equity interests in a U.S. person.
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(3)(v)(B).
    (1) Debt is convertible into equity interests in a U.S. person; or
    (2) The return earned on such interest (including upon a sale, 
exchange, or redemption) is determined primarily by reference to 
profits or assets of a U.S. person or equity interests in a U.S. 
person.
    (vi) Return earned on the interest (including upon a sale, 
exchange, or redemption) determined, directly or indirectly, primarily 
by reference to one or more investment entities or passive NFFEs.
    (A) Equity interest. The return earned on an equity interest is 
determined, directly or indirectly, primarily by reference to one or 
more investment entities described in paragraph (e)(4)(i)(B) or (C) of 
this section or passive NFFEs that are members of the entity's expanded 
affiliated group if the return on such interest (including upon a sale, 
exchange, or redemption) is determined primarily by reference to 
profits or assets of, or equity interests in, one or more investment 
entities described in paragraph (e)(4)(i)(B) or (C) of this section or 
passive NFFEs that are members of the entity's expanded affiliated 
group.
    (B) Debt interest. The return earned on a debt interest is 
determined, directly or indirectly, primarily by reference to one or 
more investment entities described in paragraph (e)(4)(i)(B) or (C) of 
this section or passive NFFEs that are members of the entity's expanded 
affiliated group if--
    (1) Debt is convertible into equity interests in one or more 
investment entities described in paragraph (e)(4)(i)(B) or (C) of this 
section or passive NFFEs that are members of the entity's expanded 
affiliated group; or
    (2) The return on such interest (including upon a sale, exchange, 
or redemption) is determined primarily by reference to profits or 
assets of, or equity interests in, one or more investment entities 
described in paragraph (e)(4)(i)(B) or (C) of this section or passive 
NFFEs that are members of the entity's expanded affiliated group.
    (vii) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(3)(vii) through (b)(3)(vii)(D)(3).
    (4) through (5) [Reserved]. For further guidance, see Sec.  1.1471-
5(b)(4) through (5).
    (c) U.S. owned foreign entity. The term U.S. owned foreign entity 
means any foreign entity that has one or more substantial U.S. owners 
(as defined in Sec.  1.1473-1(b)). See Sec.  1.1473-1(e) for the 
definition of foreign entity for purposes of chapter 4. For the 
requirements applicable to determining direct and

[[Page 12852]]

indirect ownership in an entity, see Sec.  1.1473-1(b)(2).
    (d) [Reserved]. For further guidance, see Sec.  1.1471-5(d).
    (e) [Reserved]. For further guidance, see Sec.  1.1471-5(e).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(1).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1471-5(e)(1)(i) through (iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(1)(v).
    (A) Is part of an expanded affiliated group that includes a 
depository institution, custodial institution, specified insurance 
company, or investment entity described in paragraphs (e)(4)(i)(B) or 
(C) of this section; or
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(1)(v)(B).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(2) 
through (e)(2)(iv).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(3)(i) 
through (e)(3)(i)(B).
    (ii) Income attributable to holding financial assets and related 
financial services. For purposes of this paragraph (e)(3), the term 
income attributable to holding financial assets and related financial 
services means custody, account maintenance, and transfer fees; 
commissions and fees earned from executing and pricing securities 
transactions; income earned from extending credit to customers with 
respect to financial assets held in custody by the entity (or acquired 
through such extension of credit); income earned on the bid-ask spread 
of financial assets; fees for providing financial advice with respect 
to financial assets held in (or potentially to be held in) custody by 
the entity; and fees for clearance and settlement services.
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(3)(iii).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(4).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1471-5(e)(4)(i) through (e)(4)(iv)(B).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(4)(v).

    Example 1 through Example 6 [Reserved].  For further guidance, 
see Sec.  1.1471-5(e)(4)(v), Example 1 through Example 6.
    Example 7. Individual introducing broker. IB, an individual 
introducing broker, primarily conducts a business of providing 
advice to clients, has discretionary authority to manage clients' 
assets, and uses the services of a foreign entity to conduct and 
execute trades on behalf of clients. IB provides services as an 
investment advisor and manager to Entity, a foreign corporation. 
Entity has earned 50% or more of its gross income for the past three 
years from investing, reinvesting, or trading in financial assets. 
Because IB is an individual, notwithstanding that IB primarily 
conducts certain investment-related activities, IB is not an 
investment entity under paragraph (e)(4)(i)(A) of this section. 
Further, Entity is not an investment entity under paragraph 
(e)(4)(i)(B) of this section because Entity is managed by IB, an 
individual.
    Example 8. Entity introducing broker. IB, a foreign entity 
introducing broker, primarily conducts a business of providing 
advice to clients, has discretionary authority to manage clients' 
assets, and uses the services of a foreign entity to conduct and 
execute trades on behalf of clients. IB provides its services as an 
investment advisor and manager to Entity, a foreign corporation. 
Entity has earned 50% or more of its gross income for the past three 
years from investing, reinvesting, or trading in financial assets. 
Because IB is an entity that primarily conducts certain investment-
related activities, IB is an investment entity under paragraph 
(e)(4)(i)(A) of this section. Further, Entity is an investment 
entity under paragraph (e)(4)(i)(B) of this section because it is 
managed by IB, an investment entity that performs certain of the 
activities described in paragraph (e)(4)(i)(A) of this section on 
behalf of Entity.

    (5) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(5).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(5)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(A).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(A)(1) through (2).
    (3) The entity does not hold itself out as (and was not formed in 
connection with or availed of by) an arrangement or investment vehicle 
that is a private equity fund, venture capital fund, leveraged buyout 
fund, or any similar investment vehicle established with an investment 
strategy to acquire or fund companies and to treat the interests in 
those companies as capital assets held for investment purposes. For 
purposes of determining whether an entity was formed in connection with 
or availed of by such an arrangement or investment vehicle, any entity 
that existed at least six months prior to its acquisition by such 
arrangement or investment vehicle and that, prior to the acquisition, 
regularly conducted activities in the ordinary course of business will 
not be considered to have been formed in connection with or availed of 
by the arrangement or investment vehicle, in the absence of other facts 
suggesting the existence of an investment strategy described in the 
prior sentence.
    (B) Nonfinancial group. An expanded affiliated group defined in 
Sec.  1.1471-5(i)(2) is a nonfinancial group if, taking into account 
the application of this section--
    (1) For the three-year period (or the period during which the 
expanded affiliated group has been in existence, if shorter) ending on 
December 31 of the year preceding the year in which the determination 
is made, no more than 25 percent of the gross income of the expanded 
affiliated group (excluding income derived by any member that is an 
entity described in paragraph (e)(5)(ii) or (iii) of this section and 
income derived from transactions between members of the expanded 
affiliated group) consists of passive income (as defined in Sec.  
1.1472-1(c)(1)(iv)); no more than five percent of the gross income of 
the expanded affiliated group is derived by members of the expanded 
affiliated group that are FFIs (excluding income derived from 
transactions between members of the expanded affiliated group or by any 
member of the expanded affiliated group that is a certified deemed-
compliant FFI); and no more than 25 percent of the value of assets held 
by the expanded affiliated group (excluding assets held by a member 
that is an entity described in paragraph (e)(5)(ii) or (iii) of this 
section and assets resulting from transactions between related members 
of the expanded affiliated group) are assets that produce or are held 
for the production of passive income; and
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(B)(2).
    (C) Holding company. For purposes of this paragraph (e)(5)(i), an 
entity is a holding company if its primary activity consists of holding 
(directly or indirectly) all or part of the outstanding stock of one or 
more members of its expanded affiliated group. A partnership or any 
other non-corporate entity shall be treated as a holding company if 
substantially all the activities of such partnership (or other entity) 
consist of holding more than 50 percent of the voting power and value 
of the stock of one or more common parent corporation(s) of one or more 
expanded affiliated group(s). If a partnership or other non-corporate 
entity owns more than 50 percent of the voting power and value of the 
stock of more than one common parent corporation of an expanded 
affiliated group, each common parent corporation's expanded affiliated 
group will be treated as a separate expanded affiliated group for 
purposes of applying the rules of this section unless a non-corporate 
entity is treated as the common parent entity of the expanded 
affiliated group in accordance with Sec.  1.1471-5(i)(10).

[[Page 12853]]

    (D) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(D).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(D)(1).
    (i) through (iii) [Reserved]. For further guidance, see Sec.  
1.1471-5(e)(5)(i)(D)(1)(i) through (iii).
    (iv) Managing the working capital of the expanded affiliated group 
(or any member thereof) such as by pooling the cash balances of 
affiliates (including both positive and deficit cash balances) or by 
investing or trading in financial assets solely for the account and 
risk of such entity or any member of its expanded affiliated group; or
    (v) Acting as a financing vehicle for the expanded affiliated group 
(or any member thereof).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(D)(2).
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1471-5(e)(5)(i)(D)(2)(i) through (ii).
    (E) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(i)(E).
    (ii) through (iii) [Reserved]. For further guidance, see Sec.  
1.1471-5(e)(5)(ii) through (iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(iv).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(iv)(A).
    (B) The entity does not hold an account (other than a depository 
account in the country in which the entity is operating to pay for 
expenses in that country) with or receive payments from any withholding 
agent other than a member of its expanded affiliated group;
    (C) through (D) [Reserved]. For further guidance, see Sec.  1.1471-
5(e)(5)(iv)(C) through (D).
    (v) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(5)(v) 
through (e)(5)(vi)(D).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-5(e)(6).
    (f) [Reserved]. For further guidance, see Sec.  1.1471-5(f).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(1).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(1)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(A).
    (1) through (5) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(A)(1) through (5).
    (6) By the later of June 30, 2014, or the date it registers as a 
deemed-compliant FFI, the FFI implements policies and procedures, 
consistent with those set forth for a participating FFI under Sec.  
1.1471-4(c), to monitor whether the FFI opens or maintains an account 
for a specified U.S. person who is not a resident of the country in 
which the FFI is incorporated or organized (including a U.S. person 
that was a resident when the account was opened but subsequently ceases 
to be a resident), an entity controlled or beneficially owned (as 
determined under the FFI's AML due diligence) by one or more specified 
U.S. persons that are not residents of the country in which the FFI is 
incorporated or organized, or a nonparticipating FFI. Such policies and 
procedures must provide that if any such account is discovered, the FFI 
will close such account, transfer such account to a participating FFI, 
reporting Model 1 FFI, or U.S. financial institution, or withhold and 
report on such account as would be required under Sec.  1.1471-4(b) and 
(d) if the FFI were a participating FFI.
    (7) through (9) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(A)(7) through (9).
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(B).
    (1) By the later of June 30, 2014, or the date it registers with 
the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI 
implements policies and procedures to ensure that within six months of 
opening a U.S. account or an account held by a recalcitrant account 
holder or a nonparticipating FFI, the FFI either transfers such account 
to an affiliate that is a participating FFI, reporting Model 1 FFI, or 
U.S. financial institution, closes the account, or becomes a 
participating FFI.
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(B)(2).
    (3) By the later of June 30, 2014, or the date it registers with 
the IRS pursuant to paragraph (f)(1)(ii) of this section, the FFI 
implements policies and procedures to ensure that it identifies any 
account that becomes a U.S. account or an account held by a 
recalcitrant account holder or a nonparticipating FFI due to a change 
in circumstances. Within six months of the date on which the FFI first 
has knowledge or reason to know of the change in the account holder's 
chapter 4 status, the FFI transfers any such account to an affiliate 
that is a participating FFI, reporting Model 1 FFI, or U.S. financial 
institution, closes the account, or becomes a participating FFI.
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(C).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(C)(1).
    (2) Each holder of record of direct debt interests in the FFI in 
excess of $50,000, of any direct equity interests in the FFI (for 
example the holders of its units or global certificates), and of any 
other account holder of the FFI is a participating FFI, a registered 
deemed-compliant FFI, a retirement plan described in Sec.  1.1471-6(f), 
a non-profit organization described in paragraph (e)(5)(vi) of this 
section, a U.S. person that is not a specified U.S. person, a 
nonreporting IGA FFI, or an exempt beneficial owner. Notwithstanding 
the prior sentence, an FFI will not be prohibited from qualifying as a 
qualified collective investment vehicle solely because it has issued 
interests in bearer form provided that the FFI ceased issuing interests 
in such form after December 31, 2012, retires all such interests upon 
surrender, and establishes policies and procedures to redeem or 
immobilize all such interests prior to January 1, 2017, and that prior 
to payment the FFI documents the account holder in accordance with the 
procedures set forth in Sec.  1.1471-4(c) applicable to accounts other 
than preexisting accounts and agrees to withhold and report on such 
accounts as would be required under Sec.  1.1471-4(b) and (d) if it 
were a participating FFI. For purposes of this paragraph (f)(1)(i)(C), 
an FFI may disregard equity interests owned by specified U.S. persons 
acquired with seed capital within the meaning of paragraph (i)(4) of 
this section if the specified U.S. person is described in paragraph 
(i)(3)(i) and (ii) of this section (substituting the term U.S. person 
for the terms FFI and member), and the specified U.S. person neither 
has held, nor intends to hold, such interest for more than three years.
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(C)(3).
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(D).
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(D)(1) through (3).
    (4) The FFI ensures that by the later of December 31, 2014, or six 
months after the date the FFI registers as a deemed-compliant FFI, each 
agreement that governs the distribution of its debt or equity interests 
prohibits sales and other transfers of debt or equity interests in the 
FFI (other than interests that are both distributed by and held through 
a participating FFI) to specified U.S. persons, nonparticipating FFIs, 
or passive NFFEs with one or more substantial U.S. owners. In addition, 
by that date, the FFI's prospectus and all marketing materials must 
indicate that sales and other transfers of interests in the FFI to 
specified U.S. persons, nonparticipating FFIs, or passive NFFEs with 
one or more substantial U.S. owners are prohibited unless such 
interests are both distributed by and held through a participating FFI.
    (5) The FFI ensures that by the later of December 31, 2014, or six 
months after the date the FFI registers as a

[[Page 12854]]

deemed-compliant FFI, each agreement entered into by the FFI that 
governs the distribution of its debt or equity interests requires the 
distributor to notify the FFI of a change in the distributor's chapter 
4 status within 90 days of the change. The FFI must, with respect to 
any distributor that ceases to qualify as a distributor identified in 
paragraph (f)(1)(i)(D)(3) of this section, terminate its distribution 
agreement with the distributor, or cause the distribution agreement to 
be terminated, within 90 days of the notification of the distributor's 
change in status and, with respect to all debt and equity interests of 
the FFI issued through that distributor, redeem those interests, 
convert those interests to direct holdings in the fund, or cause those 
interests to be transferred to another distributor identified in 
paragraph (f)(1)(i)(D)(3) of this section within six months of the 
distributor's change in status.
    (6) With respect to any of the FFI's preexisting direct accounts 
that are held by the beneficial owner of the interest in the FFI, the 
FFI reviews those accounts in accordance with the procedures (and time 
frames) described in Sec.  1.1471-4(c) applicable to preexisting 
accounts to identify any U.S. account or account held by a 
nonparticipating FFI. Notwithstanding the previous sentence, the FFI 
will not be required to review the account of any individual investor 
that purchased its interest at a time when all of the FFI's 
distribution agreements and its prospectus contained an explicit 
prohibition of the issuance and/or sale of shares to U.S. entities and 
U.S. resident individuals. An FFI will not be required to review the 
account of any investor that purchased its interest in bearer form 
until the time of payment, but at such time will be required to 
document the account in accordance with procedures set forth in Sec.  
1.1471-4(c) applicable to accounts other than preexisting accounts. By 
the later of December 31, 2014, or six months after the date the FFI 
registers as a deemed-compliant FFI, the FFI will be required to 
certify to the IRS either that it did not identify any U.S. account or 
account held by a nonparticipating FFI as a result of its review or, if 
any such accounts were identified, that the FFI will either redeem such 
accounts, transfer such accounts to an affiliate or other FFI that is a 
participating FFI, reporting Model 1 FFI, or U.S. financial 
institution, or withhold and report on such accounts as would be 
required under Sec.  1.1471-4(b) and (d) if it were a participating 
FFI.
    (7) By the later of June 30, 2014, or the date that it registers as 
a deemed-compliant FFI, the FFI implements the policies and procedures 
described in Sec.  1.1471-4(c) to ensure that it either--
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1471-5(f)(1)(i)(D)(7)(i) through (ii).
    (8) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(D)(8).
    (E) Qualified credit card issuers and servicers. An FFI is 
described in this paragraph (f)(1)(i)(E) if the FFI meets the following 
requirements.
    (1) The FFI is an FFI solely because it is an issuer or servicer of 
credit cards that accepts deposits, on its own behalf or, in the case 
of a servicer, on behalf of a credit card issuer, only when a customer 
makes a payment in excess of a balance due with respect to the credit 
card account and the overpayment is not immediately returned to the 
customer.
    (2) By the later of June 30, 2014, or the date it registers as a 
deemed-compliant FFI, the FFI implements policies and procedures to 
either prevent a customer deposit in excess of $50,000 or to ensure 
that any customer deposit in excess of $50,000 is refunded to the 
customer within 60 days. For this purpose, a customer deposit does not 
refer to credit balances to the extent of disputed charges but does 
include credit balances resulting from merchandise returns.
    (F) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F)(1).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F)(1)(i).
    (ii) An entity, other than a nonparticipating FFI, has agreed with 
the FFI to act as a sponsoring entity for the FFI.
    (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F)(2) through (f)(1)(i)(F)(2)(iii).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F)(3).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1471-5(f)(1)(i)(F)(3)(i) through (iv).
    (v) Identifies the FFI in all reporting completed on the FFI's 
behalf to the extent required under Sec. Sec.  1.1471-4(d)(2)(ii)(C) 
and 1.1474-1;
    (vi) Performs the verification procedures required under Sec.  
1.1471-4(f) on behalf of the FFI, including the certification required 
under Sec.  1.1471-4(f)(3);
    (vii) Performs the verification procedures required under 
paragraphs (j) and (k) of this section; and
    (viii) Has not had its status as a sponsoring entity revoked.
    (4) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(i)(F)(4).
    (5) A sponsoring entity is not liable for any failure to comply 
with the obligations contained in paragraph (f)(1)(i)(F)(3) of this 
section unless the sponsoring entity is a withholding agent that is 
separately liable for the failure to withhold on or report with respect 
to a payment made to the sponsored FFI. A sponsored FFI will remain 
liable for any failure of its sponsoring entity to comply with the 
obligations contained in paragraph (f)(1)(i)(F)(3) of this section that 
the sponsoring entity has agreed to undertake on behalf of the FFI, 
even if the sponsoring entity is also a withholding agent and is itself 
separately liable for the failure to withhold on or report with respect 
to a payment made to the sponsored FFI. The same tax, interest, or 
penalties, however, shall not be collected more than once.
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(ii)(A).
    (B) Have its responsible officer certify every three years to the 
IRS, either individually or collectively for the FFI's expanded 
affiliated group, that all of the requirements for the deemed-compliant 
category claimed by the FFI have been satisfied since the later of the 
date the FFI registers as a deemed-compliant FFI or June 30, 2014;
    (C) through (D) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(ii)(C) through (D).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(1)(iii).
    (2) Certified deemed-compliant FFIs. A certified deemed-compliant 
FFI means an FFI described in any of paragraphs (f)(2)(i) through (v) 
of this section that has certified as to its status as a deemed-
compliant FFI by providing a withholding agent with the documentation 
described in Sec.  1.1471-3(d)(6) applicable to the relevant deemed-
compliant category. A certified deemed-compliant FFI also includes a 
nonreporting FFI under a Model 1 IGA and a nonreporting FFI treated as 
a certified deemed-compliant FFI under a Model 2 IGA. A certified 
deemed-compliant FFI is not required to register with the IRS.
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(2)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(2)(i)(A) through (f)(2)(i)(A)(2).
    (B) The FFI's business consists primarily of receiving deposits 
from and making loans to, with respect to a bank, retail customers that 
are unrelated to such bank and, with respect to a credit union or 
similar cooperative credit organization, members, provided that no

[[Page 12855]]

such member has a greater than 5 percent interest in such credit union 
or cooperative credit organization. For purposes of this paragraph 
(f)(2)(i)(B), a customer is related to a bank if the customer and the 
bank have a relationship described in section 267(b). For purposes of 
determining whether a member has a greater than 5 percent interest in a 
credit union or cooperative credit organization, the member must 
aggregate the ownership or beneficial interests in the credit union or 
cooperative credit organization that are owned or held by a related 
member. A member of a credit union or cooperative credit organization 
is related to another member if the relationship of such members is 
described in section 267(b).
    (C) through (F) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(2)(i)(C) through (F).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(2)(ii) 
through (f)(2)(ii)(C).
    (iii) Sponsored, closely held investment vehicles. Subject to the 
provisions of paragraph (f)(2)(iii)(F) of this section, an FFI is 
described in this paragraph (f)(2)(iii) if it meets the requirements 
described in paragraphs (f)(2)(iii)(A) through (D) of this section.
    (A) The FFI is an FFI solely because it is an investment entity and 
is not a QI, WP, or WT.
    (B) A participating FFI, reporting Model 1 FFI, or U.S. financial 
institution agrees to fulfill all due diligence, withholding, and 
reporting responsibilities that the FFI would have assumed if it were a 
participating FFI.
    (C) Twenty or fewer individuals own all of the debt and equity 
interests in the FFI (disregarding debt interests owned by U.S. 
financial institutions, participating FFIs, registered deemed-compliant 
FFIs, and certified deemed-compliant FFIs and equity interests owned by 
an entity if that entity owns 100 percent of the equity interests in 
the FFI and is itself a sponsored FFI under this paragraph 
(f)(2)(iii)).
    (D) The sponsoring entity complies with the following 
requirements--
    (1) The sponsoring entity has registered with the IRS as a 
sponsoring entity;
    (2) The sponsoring entity agrees to perform, on behalf of the FFI, 
all due diligence, withholding, reporting, and other requirements that 
the FFI would have been required to perform if it were a participating 
FFI and retains documentation collected with respect to the FFI for a 
period of six years;
    (3) The sponsoring entity identifies the FFI in all reporting 
completed on the FFI's behalf to the extent required under Sec. Sec.  
1.1471-4(d)(2)(ii)(C) and 1.1474-1;
    (4) Performs the verification procedures required under Sec.  
1.1471-4(f) on behalf of the FFI, including the certification required 
under Sec.  1.1471-4(f)(3);
    (5) Performs the verification procedures required under paragraphs 
(j) and (k) of this section; and
    (6) The sponsoring entity has not had its status as a sponsor 
revoked.
    (E) The IRS may revoke a sponsoring entity's status as a sponsoring 
entity with respect to all sponsored FFIs if there is a material 
failure by the sponsoring entity to comply with its obligations under 
this paragraph (f)(2)(iii)(E) with respect to any sponsored FFI. A 
sponsoring entity is not liable for any failure to comply with the 
obligations contained in this paragraph (f)(2)(iii)(E) unless the 
sponsoring entity is a withholding agent that is separately liable for 
the failure to withhold on or report with respect to the payment made 
to the sponsored FFI. A sponsored FFI will remain liable for any 
failure of its sponsoring entity to comply with the obligations 
contained in this paragraph (f)(2)(iii)(E) that the sponsoring entity 
has agreed to undertake on behalf of the FFI, even if the sponsoring 
entity is also a withholding agent and is itself separately liable for 
the failure to withhold on or report with respect to a payment made to 
the sponsored FFI. The same tax, interest, or penalties, however, shall 
not be collected more than once.
    (iv) Limited life debt investment entities (transitional). An FFI 
is described in this paragraph (f)(2)(iv) if the FFI is the beneficial 
owner of the payment (or of payments made with respect to the account) 
and the FFI meets the following requirements.
    (A) The FFI is an investment entity that issued one or more classes 
of debt or equity interests to investors pursuant to a trust indenture 
or similar agreement and all of such interests were issued on or before 
January 17, 2013.
    (B) The FFI was in existence as of January 17, 2013, and has 
entered into a trust indenture or similar agreement that requires the 
FFI to pay to investors holding substantially all of the interests in 
the FFI, no later than a set date or period following the maturity of 
the last asset held by the FFI, all amounts that such investors are 
entitled to receive from the FFI.
    (C) The FFI was formed and operated for the purpose of purchasing 
or acquiring specific types of debt instruments or interests therein 
and holding those assets subject to reinvestment only under prescribed 
circumstances to maturity.
    (D) Substantially all of the assets of the FFI consist of debt 
instruments or interests therein.
    (E) All payments made to the investors of the FFI (other than 
holders of a de minimis interest) are either cleared through a clearing 
organization or custodial institution that is a participating FFI, 
reporting Model 1 FFI, or U.S. financial institution or made through a 
transfer agent that is a participating FFI, reporting Model 1 FFI, or 
U.S. financial institution.
    (F) The FFI's trustee or fiduciary is not authorized through a 
fiduciary duty or otherwise to fulfill the obligations of a 
participating FFI under Sec.  1.1471-4 and no other person has the 
authority to fulfill the obligations of a participating FFI under Sec.  
1.1471-4 on behalf of the FFI.
    (v) Investment advisors and investment managers. An FFI is 
described in this paragraph (f)(2)(v) if the FFI meets the following 
requirements:
    (A) The FFI is a financial institution solely because it is 
described in Sec.  1.1471-5(e)(4)(i)(A).
    (B) The FFI does not maintain financial accounts.
    (3) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(3)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(3)(ii).
    (A) through (E) [Reserved]. For further guidance, see Sec.  1.1471-
5(f)(3)(ii)(A) through (E).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-5(f)(4).
    (i) The distributor provides investment services to at least 30 
customers unrelated to each other and fewer than half of the 
distributor's customers are related to each other. For purposes of this 
paragraph (f)(4)(i), customers are related to each other if they have a 
relationship with each other described in section 267(b).
    (ii) through (viii) [Reserved]. For further guidance, see Sec.  
1.1471-5(f)(4)(ii) through (viii).
    (g) [Reserved]. For further guidance, see Sec.  1.1471-5(g).
    (1) through (2) [Reserved]. For further guidance, see Sec.  1.1471-
5(g)(1) through (g)(2)(iv).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-5(g)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-5(g)(3)(i).
    (A) through (C) [Reserved]. For further guidance, see Sec.  1.1471-
5(g)(3)(i)(A) through (C).
    (D) Preexisting accounts that become high-value accounts. With 
respect to a

[[Page 12856]]

calendar year beginning after December 31, 2015, an account holder that 
is described in paragraph (g)(2) of this section and that holds a 
preexisting account that a participating FFI identifies as a high-value 
account pursuant to Sec.  1.1471-4(c)(5)(iv)(D) will be treated as a 
recalcitrant account holder beginning on the earlier of the date a 
withholdable payment is made to the account following end of the 
calendar year in which the account is identified as a high-value 
account or the date that is six months after the calendar year end.
    (ii) through (iii) [Reserved]. For further guidance, see Sec.  
1.1471-5(g)(3)(ii) through (iii).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-5(g)(4).
    (h) [Reserved]. For further guidance, see Sec.  1.1471-5(h) through 
(h)(2).
    (i) Expanded affiliated group-- Scope of paragraph. This paragraph 
(i) defines the term expanded affiliated group for purposes of chapter 
4. For the requirements of a participating FFI with respect to members 
of its expanded affiliated group that are FFIs, see Sec.  1.1471-4(e).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-5(i)(1).
    (2) Expanded affiliated group defined. Except as otherwise provided 
in this paragraph (i), an expanded affiliated group is defined in 
accordance with the principles of section 1504(a) to mean one or more 
chains of members connected through ownership by a common parent entity 
if the common parent entity directly owns stock or other equity 
interests meeting the requirements of paragraph (i)(4) of this section 
in at least one of the other members (for purposes of this paragraph 
(i), the constructive ownership rules of section 318 do not apply). 
Generally, only a corporation shall be treated as the common parent 
entity of an expanded affiliated group, unless the taxpayer elects to 
follow the approach described in paragraph (i)(10).
    (3) Member of expanded affiliated group. The term member of an 
expanded affiliated group means a corporation or any entity other than 
a corporation (such as a partnership or trust) with respect to which 
the ownership requirements of paragraph (i)(4) of this section are met, 
regardless of whether such entity is a U.S. person or a foreign person, 
but excluding corporations described in paragraphs (1), (4), (6), (7), 
or (8) of section 1504(b).
    (4) Ownership test. The ownership requirements of this paragraph 
(i)(4) are met if--
    (i) Corporations. For purposes of paragraph (i)(2) of this section, 
a corporation (except the common parent entity) will be considered 
owned by another member entity or by the common parent entity if more 
than 50 percent of the total voting power of the stock of such 
corporation and more than 50 percent of the total value of the stock of 
such corporation is owned directly by one or more other members of the 
group (including the common parent entity).
    (A) Stock not to include certain preferred stock. For purposes of 
this paragraph (i)(4), the term stock does not include any stock which 
is described in section 1504(a)(4).
    (B) Valuation. For purposes of section 1471(e) and this section, 
all shares of stock within a single class are considered to have the 
same value in determining the ownership percentage. Thus, control 
premiums and minority blockage discounts within a single class are not 
taken into account.
    (ii) Partnerships. For purposes of paragraph (i)(2) of this 
section, a partnership will be considered owned by another member 
entity (including the common parent entity) if more than 50 percent (by 
value) of the capital or profits interest in the partnership is owned 
directly by one or more other members of the group (including the 
common parent entity).
    (iii) Trusts. For purposes of paragraph (i)(2) of this section, a 
trust will be considered owned by another member entity or by the 
common parent entity if more than 50 percent (by value) of the 
beneficial interest in such trust is owned directly by one or more 
other members of the group (including the common parent entity). A 
beneficial interest in a trust includes an interest held by an entity 
treated as a grantor or other owner of the trust under sections 671 
through 679 and a beneficial trust interest.
    (5) Treatment of warrants, options, and obligations convertible 
into equity for determining ownership. For purposes of paragraph (i)(4) 
of this section, ownership of warrants, options, obligations 
convertible into the equity of a corporation or entity other than a 
corporation, and other similar interests is not considered for purposes 
of determining whether an entity is a member of an expanded affiliated 
group, except as follows:
    (i) Ownership of a warrant, option, obligation convertible into 
stock, or other similar instrument creating an interest in a 
corporation will be considered for purposes of paragraph (i)(4) of this 
section to the extent that the common parent or member of the expanded 
affiliated group that holds such instrument also maintains voting 
rights with respect to such corporation. However, interests described 
in Sec.  1.1504-4(d)(2) will not be treated as options.
    (ii) Ownership of a warrant, option, obligation convertible into an 
equity interest, or other similar instrument creating an interest in a 
corporation or entity other than a corporation will be considered for 
purposes of paragraph (i)(4) of this section to the extent that such 
instrument is reasonably certain to be exercised, based on all of the 
facts and circumstances and in accordance with the principles set forth 
in Sec.  1.1504-4(g).
    (6) Exception for FFIs holding certain capital investments. 
Notwithstanding paragraphs (i)(2) and (i)(4) of this section, an 
investment entity will not be considered a member of an expanded 
affiliated group as a result of a contribution of seed capital by a 
member of such expanded affiliated group if--
    (i) The member that owns the investment entity is an FFI that is in 
the business of providing seed capital to form investment entities, the 
interests in which it intends to sell to investors that do not have a 
relationship with each other described in section 267(b);
    (ii) The investment entity is created in the ordinary course of 
such other FFI's business described in paragraph (i)(6)(i) of this 
section;
    (iii) As of the date the FFI acquired the equity interest, any 
equity interest in the investment entity in excess of 50 percent of the 
total value of the stock of the investment entity is intended to be 
held by such other FFI (including ownership by other members of such 
other FFI's expanded affiliated group) for no more than three years 
from the date on which such other FFI first acquired an equity interest 
in the investment entity; and
    (iv) In the case of an equity interest that has been held by such 
other FFI for over three years from the date referenced in paragraph 
(i)(6)(iii) of this section, the aggregate value of the equity interest 
held by such other FFI and the equity interests held by other members 
of its expanded affiliated group is 50 percent or less of the total 
value of the stock of the investment entity.
    (7) Seed capital. For purposes of this paragraph (i), the term seed 
capital means an initial capital contribution made to an investment 
entity that is intended as a temporary investment and is deemed by the 
manager of the entity to be necessary or appropriate for the 
establishment of the entity, such as for the purpose of establishing a 
track record of investment performance for such entity, achieving 
economies of scale for diversified investment,

[[Page 12857]]

avoiding an artificially high expense to return ratio, or similar 
purposes.
    (8) Anti-abuse rule. A change in ownership, voting rights, or the 
form of an entity that results in an entity meeting or not meeting the 
ownership requirements described in paragraph (i)(4) of this section 
will be disregarded for purposes of determining whether an entity is a 
member of an expanded affiliated group if the change is pursuant to a 
plan a principal purpose of which is to avoid reporting or withholding 
that would otherwise be required under any chapter 4 provision. For 
purposes of this paragraph (i)(8), a change in voting rights includes a 
separation of voting rights and value.
    (9) Exception for limited life debt investment entities. 
Notwithstanding paragraphs (i)(2) and (i)(4) of this section, an entity 
that meets the requirements of Sec.  1.1471-5(f)(2)(iv), including the 
requirements to have been in existence as of January 17, 2013, and to 
have issued interests in the entity on or before January 17, 2013, will 
not be considered a member of an expanded affiliated group as a result 
of any member of such expanded affiliated group owning interests in 
such entity.
    (10) Partnerships, trusts, and other non-corporate entities. For 
purposes of determining the composition of an expanded affiliated 
group, an entity other than a corporation may elect to be treated as 
the common parent entity. Taxpayers following this approach may not, in 
a later year, follow the rule described in paragraph (i)(2) without the 
approval of the Commissioner. See also Sec.  1.1471-5(e)(5)(i)(C).
    (j) Sponsoring entity verification. [Reserved].
    (k) Sponsoring entity event of default. [Reserved].
    (l) [Reserved]. For further guidance, see Sec.  1.1471-5(l).
    (m) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 12. In Sec.  1.1471-6, revise paragraphs (d)(1), (d)(4), 
(f)(2)(iii)(B) through) (C), (f)(3)(ii) through (iii), (f)(5) through 
(6), (g), and (h)(2) to read as follows:


Sec.  1.1471-6  Payments beneficially owned by exempt beneficial 
owners.

* * * * *
    (d) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1471-6T(d)(1).
* * * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1471-6T(d)(4).
* * * * *
    (f) * * *
    (2) * * *
    (iii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1471-
6T(f)(2)(iii)(B).
    (C) [Reserved]. For further guidance, see Sec.  1.1471-
6T(f)(2)(iii)(C).
* * * * *
    (3) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1471-
6T(f)(3)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
6T(f)(3)(iii).
* * * * *
    (5) [Reserved]. For further guidance, see Sec.  1.1471-6T(f)(5).
    (6) [Reserved]. For further guidance, see Sec.  1.1471-6T(f)(6).
* * * * *
    (g) [Reserved]. For further guidance, see Sec.  1.1471-6T(g).
    (h) * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1471-6T(h)(2) 
through (h)(2)(iii).
* * * * *

0
Par. 13. Section 1.1471-6T is added to read as follows:


Sec.  1.1471-6T  Payments beneficially owned by exempt beneficial 
owners (temporary).

    (a) through (c) [Reserved]. For further guidance, see Sec.  1.1471-
6(a) through (c)(3).
    (d) [Reserved]. For further guidance, see Sec.  1.1471-6(d).
    (1) In general. Solely for purposes of this section and except as 
provided in paragraph (h) of this section, the term foreign central 
bank of issue means an institution that is by law or government 
sanction the principal authority, other than the government itself, 
issuing instruments intended to circulate as currency. Such an 
institution is generally the custodian of the banking reserves of the 
country under whose law it is organized.
    (2) through (3) [Reserved]. For further guidance, see Sec.  1.1471-
6(d)(2) through (3).
    (4) Income on certain transactions. Solely for purposes of 
determining whether an entity is an exempt beneficial owner of a 
payment under this paragraph (d), a foreign central bank of issue is a 
beneficial owner with respect to income earned on cash and securities, 
including cash and securities held as collateral or securities held in 
connection with a securities lending transaction, held by the foreign 
central bank of issue in the ordinary course of its operations as a 
central bank of issue.
    (e) [Reserved]. For further guidance, see Sec.  1.1471-6(e).
    (f) [Reserved]. For further guidance, see Sec.  1.1471-6(f).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(2).
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1471-6(f)(2)(i) through (ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1471-
6(f)(2)(iii).
    (A) [Reserved]. For further guidance, see Sec.  1.1471-
6(f)(2)(iii)(A).
    (B) The fund receives at least 50 percent of its total 
contributions (other than transfers of assets from accounts described 
in Sec.  1.1471-5(b)(2)(i)(A) (referring to retirement and pension 
accounts), from retirement and pension accounts described in an 
applicable Model 1 or Model 2 IGA, or from other retirement funds 
described in this paragraph (f) or in an applicable Model 1 or Model 2 
IGA) from the sponsoring employers;
    (C) Distributions or withdrawals from the fund are allowed only 
upon the occurrence of specified events related to retirement, 
disability, or death (except rollover distributions to accounts 
described in Sec.  1.1471-5(b)(2)(i)(A) (referring to retirement and 
pension accounts), to retirement and pension accounts described in an 
applicable Model 1 or Model 2 IGA, or to other retirement funds 
described in this paragraph (f) or in an applicable Model 1 or Model 2 
IGA), or penalties apply to distributions or withdrawals made before 
such specified events; or
    (D) [Reserved]. For further guidance, see Sec.  1.1471-
6(f)(2)(iii)(D).
    (3) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(3).
    (i) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(3)(i).
    (ii) The fund is sponsored by one or more employers and each of 
these employers are not investment entities or passive NFFEs;
    (iii) Employee and employer contributions to the fund (other than 
transfers of assets from other retirement plans described in paragraph 
(f)(1) of this section, from accounts described in Sec.  1.1471-
5(b)(2)(i)(A) (referring to retirement and pension accounts), or 
retirement and pension accounts described in an applicable Model 1 or 
Model 2 IGA) are limited by reference to earned income and compensation 
of the employee, respectively;
    (iv) through (v) [Reserved]. For further guidance, see Sec.  
1.1471-6(f)(3)(iv) through (v).
    (4) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(4).
    (5) Investment vehicles exclusively for retirement funds. A fund 
established exclusively to earn income for the benefit of one or more 
retirement funds described in paragraphs (f)(1) through (5) of this 
section or in an applicable

[[Page 12858]]

Model 1 or Model 2 IGA, accounts described in Sec.  1.1471-
5(b)(2)(i)(A) (referring to retirement and pension accounts), or 
retirement and pension accounts described in an applicable Model 1 or 
Model 2 IGA.
    (6) Pension fund of an exempt beneficial owner. A fund established 
and sponsored by an exempt beneficial owner described in paragraph (b), 
(c), (d), or (e) of this section or an exempt beneficial owner (other 
than a fund that qualifies as an exempt beneficial owner) described in 
an applicable Model 1 or Model 2 IGA to provide retirement, disability, 
or death benefits to beneficiaries or participants that are current or 
former employees of the exempt beneficial owner (or persons designated 
by such employees), or that are not current or former employees, but 
the benefits provided to such beneficiaries or participants are in 
consideration of personal services performed for the exempt beneficial 
owner.
    (7) [Reserved]. For further guidance, see Sec.  1.1471-6(f)(7).
    (g) Entities wholly owned by exempt beneficial owners. A person is 
described in this paragraph (g) if it is an FFI solely because it is an 
investment entity, each direct holder of an equity interest in the 
investment entity is an exempt beneficial owner described in paragraph 
(b), (c), (d), (e), (f), or (g) of this section or an exempt beneficial 
owner described in an applicable Model 1 or Model 2 IGA, and each 
direct holder of a debt interest in the investment entity is either a 
depository institution (with respect to a loan made to such entity), an 
exempt beneficial owner described in paragraph (b), (c), (d), (e), (f), 
or (g) of this section, or an exempt beneficial owner described in an 
applicable Model 1 or Model 2 IGA.
    (h) [Reserved]. For further guidance, see Sec.  1.1471-6(h).
    (1) [Reserved]. For further guidance, see Sec.  1.1471-6(h)(1).
    (2) Limitation. Paragraph (h)(1) of this section will not apply to 
a foreign central bank of issue as described in paragraph (d) if--
    (i) The entity undertakes commercial financial activity described 
in paragraph (h)(1) of this section solely for or at the direction of 
other exempt beneficial owners and such commercial financial activity 
is consistent with the purposes of the entity;
    (ii) The entity has no outstanding debt that would be a financial 
account under Sec.  1.1471-5(b)(1)(iii)(C); and
    (iii) The entity only maintains financial accounts that are 
depository accounts for current or former employees of the entity (and 
the spouses and children of such employees) or financial accounts for 
exempt beneficial owners.
    (i) [Reserved]. For further guidance, see Sec.  1.1471-6(i).
    (j) Expiration date. The applicability of this section expires on 
February 28, 2017.
0
Par. 14. Section 1.1472-1 is amended:
0
1. By redesignating paragraph (f) as paragraph (h).
0
2. By adding paragraphs (c)(1)(vi) through (vii), (c)(3) through (5), 
(f), and (g).
0
3. By revising paragraphs (b)(1) introductory text, (b)(2), (c)(1) 
introductory text, (c)(1)(i) introductory text, (c)(1)(ii) through 
(iii), (c)(1)(iv) introductory text, (c)(1)(iv)(C), (c)(1)(v), (c)(2), 
and (d)(1) through (2).
    The additions and revisions read as follows:


Sec.  1.1472-1  Withholding on NFFEs.

* * * * *
    (b) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1472-1T(b)(1).
* * * * *
    (2) [Reserved]. For further guidance, see Sec.  1.1472-1T(b)(2).
    (c) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(1).
    (i) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(1)(i).
* * * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(iv).
* * * * *
    (C) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(iv)(C).
    (v) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(1)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1472-
1T(c)(1)(vii).
    (2) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(2).
    (3) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(3).
    (4) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(4).
    (5) [Reserved]. For further guidance, see Sec.  1.1472-1T(c)(5) 
through (c)(5)(iv).
    (d) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1472-1T(d)(1).
    (2) [Reserved]. For further guidance, see Sec.  1.1472-1T(d)(2).
* * * * *
    (f) [Reserved]. For further guidance, see Sec.  1.1472-1T(f).
    (g) [Reserved]. For further guidance, see Sec.  1.1472-1T(g).
* * * * *

0
Par. 15. Section 1.1472-1T is added to read as follows:


Sec.  1.1472-1T  Withholding on NFFEs (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1472-1(a).
    (b) [Reserved]. For further guidance, see Sec.  1.1472-1(b).
    (1) In general. Except as otherwise provided in paragraph (b)(2) of 
this section (providing transitional relief) or paragraphs (c)(1) or 
(2) of this section (providing exceptions for payments to an excepted 
NFFE or an exempt beneficial owner), Sec.  1.1471-2(a)(4)(i) (providing 
an exception to withholding if the withholding agent lacks control, 
custody, or knowledge), Sec.  1.1471-2(a)(4)(vii) (providing an 
exception to withholding for payments made to an account held with or 
equity interests traded through a clearing organization with FATCA-
compliant membership), or Sec.  1.1471-2(a)(4)(viii) (providing an 
exception to withholding for payments to certain excepted accounts), a 
withholding agent must withhold 30 percent of any withholdable payment 
made after June 30, 2014, to a payee that is a NFFE unless--
    (i) through (iii) [Reserved]. For further guidance, see Sec.  
1.1472-1(b)(1)(i) through (iii).
    (2) Transitional relief. For any withholdable payment made prior to 
July 1, 2016, with respect to a preexisting obligation to a payee that 
is not a prima facie FFI and for which a withholding agent does not 
have documentation indicating the payee's status as a passive NFFE when 
the NFFE has failed to provide the owner certification as required 
under Sec.  1.1471-3(d)(12)(iii), the withholding agent is not required 
to withhold under this section or report under Sec.  1.1474-1(i)(2) 
(describing the reporting obligations of withholding agents with 
respect to NFFEs).
    (c) [Reserved]. For further guidance, see Sec.  1.1472-1(c).
    (1) Payments to an excepted NFFE. A withholding agent is not 
required to withhold under section 1472(a) and paragraph (b) of this 
section on a withholdable payment (or portion thereof) if the 
withholding agent can treat the payment as made to a payee that is an 
excepted NFFE. For purposes of this paragraph, the term excepted NFFE 
means a payee that the withholding agent may treat as a NFFE that is a 
QI, WP, or WT. Additionally, the term excepted NFFE means, with respect 
to the payment, a NFFE

[[Page 12859]]

described in paragraphs (c)(1)(i) through (vii) of this section to the 
extent the withholding agent may treat the NFFE as the beneficial owner 
of the payment.
    (i) Publicly traded corporation. A NFFE is described in this 
paragraph (c)(1)(i) if it is a corporation the stock of which is 
regularly traded on one or more established securities markets for the 
calendar year.
    (A) through (C) [Reserved]. For further guidance, see Sec.  1.1472-
1(c)(1)(i)(A) through (c)(1)(i)(C)(3).
    (ii) Certain affiliated entities related to a publicly traded 
corporation. A NFFE is described in this paragraph (c)(1)(ii) if it is 
a corporation that is a member of the same expanded affiliated group 
(as defined in Sec.  1.1471-5(i)) as a corporation described in 
paragraph (c)(1)(i) of this section.
    (iii) Certain territory entities. A NFFE is described in this 
paragraph (c)(1)(iii) if it is a territory entity that is directly or 
indirectly wholly owned by one or more bona fide residents of the U.S. 
territory under the laws of which the entity is organized. The term 
bona fide resident of a U.S. territory means an individual who 
qualifies as a bona fide resident under section 937(a) and Sec.  1.937-
1.
    (iv) Active NFFEs. A NFFE is described in this paragraph (c)(1)(iv) 
if it is an entity (an active NFFE) and less than 50 percent of its 
gross income for the preceding taxable year (i.e., calendar or fiscal) 
is passive income and less than 50 percent of the weighted average 
percentage of assets (tested quarterly) held by it are assets that 
produce or are held for the production of passive income, as determined 
after the application of paragraph (c)(1)(iv)(B) of this section 
(passive assets).
    (A) through (B) [Reserved]. For further guidance, see Sec.  1.1472-
1(c)(1)(iv)(A) through (c)(1)(B)(2)(ii).
    (C) Methods of measuring assets. For purposes of this paragraph 
(c)(1)(iv), the value of a NFFE's assets is determined based on the 
fair market value or book value of the assets that is reflected on the 
NFFE's balance sheet (as determined under either a U.S. or an 
international financial accounting standard).
    (v) Excepted nonfinancial entities. A NFFE is described in this 
paragraph (c)(1)(v) if it is an entity described in Sec.  1.1471-
5(e)(5) (referring to holding companies, treasury centers, and captive 
finance companies that are members of a nonfinancial group; start-up 
companies; entities that are liquidating or emerging from bankruptcy; 
and non-profit organizations).
    (vi) Direct reporting NFFEs. A NFFE is described in this paragraph 
(c)(1)(vi) if it meets the requirements described in Sec.  1.1472-
1(c)(3) to be treated as a direct reporting NFFE.
    (vii) Sponsored direct reporting NFFEs. A NFFE is described in this 
paragraph (c)(1)(vii) if it meets the requirements described in Sec.  
1.1472-1(c)(5) to be treated as a sponsored direct reporting NFFE.
    (2) Payments made to an exempt beneficial owner. A withholding 
agent is not required to withhold on a withholdable payment (or portion 
thereof) under section 1472(a) and paragraph (b) of this section if the 
withholding agent may treat the payment as made to an exempt beneficial 
owner.
    (3) Definition of direct reporting NFFE. A direct reporting NFFE 
means a NFFE that elects to report information about its direct or 
indirect substantial U.S. owners to the IRS and meets the following 
requirements--
    (i) The NFFE must register on Form 8957, ``FATCA Registration,'' 
(or such other form as the IRS may prescribe) with the IRS to obtain a 
GIIN pursuant to the procedures prescribed by the IRS;
    (ii) The NFFE must report directly to the IRS on Form 8966, ``FATCA 
Report,'' (or such other form as the IRS may prescribe) the following 
information for each calendar year (or, may be required by the IRS to 
certify on Form 8966, or in such other manner as the IRS may prescribe, 
that the NFFE has no substantial U.S. owners):
    (A) The name, address, and TIN of each substantial U.S. owner (as 
defined in Sec.  1.1473-1(b)) of such NFFE;
    (B) The total of all payments made to each substantial U.S. owner 
(including the gross amounts paid or credited to the substantial U.S. 
owner with respect to such owner's equity interest in the NFFE during 
the calendar year, which include payments in redemption or liquidation 
(in whole or part) of the substantial U.S. owner's equity interest in 
the NFFE);
    (C) The value of each substantial U.S. owner's equity interest in 
the NFFE determined by applying the rules described in Sec.  1.1471-
5(b)(4) (substituting the term equity for the terms account and 
financial account);
    (D) The name, address, and GIIN of the NFFE, and
    (E) Any other information as required by Form 8966 (or such other 
form as the IRS may prescribe) and its accompanying instructions;
    (iii) The NFFE must obtain a written certification (contained on a 
withholding certificate or in a written statement) from each person 
that would be treated as a substantial U.S. owner of the NFFE if such 
person were a specified U.S. person. Such written certification must 
indicate whether the person is a substantial U.S. owner of the NFFE, 
and if so, the name, address and TIN of the person. If the NFFE has 
reason to know that such written certification is unreliable or 
incorrect, it must contact the person and request a revised written 
certification. If no revised written certification is received, the 
NFFE must treat the person as a substantial U.S. owner and report on 
Form 8966 the information required under paragraph (c)(3)(ii) of this 
section. The NFFE has reason to know that such a written certification 
is unreliable or incorrect if the certification is inconsistent with 
information in the NFFE's possession, including information that the 
NFFE provides to a financial institution in order for the financial 
institution to meet its AML or other account identification due 
diligence procedures with respect to the NFFE's account, information 
that is publicly available, and U.S. indicia as described in Sec.  
1.1441-7(b) and for which appropriate documentation sufficient to cure 
the U.S. indicia in the manner set forth in Sec.  1.1441-7(b)(8) has 
not been obtained.
    (iv) The NFFE must keep records that it produces in the ordinary 
course of its business that summarize the activity (including the gross 
amounts described in paragraph (c)(3)(ii)(B) that are paid or credited 
to each of its substantial U.S. owners) relating to its transactions 
with respect to the equity of the NFFE held by each of its substantial 
U.S. owners for any calendar year in which the owner was required to be 
reported under paragraph (c)(3)(ii) of this section. The records must 
be retained for the longer of six years or the retention period under 
the NFFE's normal business procedures. A NFFE may be required to extend 
the six year retention period if the IRS requests such an extension 
prior to the expiration of the six year period;
    (v) The NFFE must respond to requests made by the IRS for 
additional information with respect to any substantial U.S. owner that 
is subject to reporting by the NFFE or with respect to the records 
described in paragraphs (c)(3)(iii) or (iv) of this section;
    (vi) The NFFE must make a periodic certification to the IRS within 
each six-month period following the end of each certification period 
relating to its compliance with respect to the election described in 
paragraphs (c)(3) and (4) of this section. The first certification 
period begins on the date a GIIN is issued and ends at the close of the 
third full calendar year following that date. Each subsequent 
certification period is the three calendar year period following

[[Page 12860]]

the close of the previous certification period. The certification will 
require an officer of the NFFE to certify to the following statements--
    (A)(1) The NFFE has not had any events of default described in 
paragraph (c)(4)(v) of this section; or
    (2) If there are any events of default, appropriate measures were 
taken to remediate such failures and to prevent such failures from 
recurring; and
    (B) With respect to any failure to report to the extent required 
under paragraph (c)(3)(ii), the NFFE has corrected such failure by 
filing the appropriate information returns; and
    (vii) The NFFE has not had its status as a direct reporting NFFE 
revoked by the IRS.
    (4) Election to be treated as a direct reporting NFFE--(i) Manner 
of making election. A NFFE may elect to be treated as a direct 
reporting NFFE by registering on Form 8957 (or such other form as the 
IRS may prescribe) with the IRS to obtain a GIIN pursuant to the 
procedures prescribed by the IRS.
    (ii) Effective date of election. The election is effective upon the 
issuance of a GIIN to the NFFE.
    (iii) Revocation of election by NFFE. The election may not be 
revoked by the NFFE without the consent of the Commissioner. The NFFE 
must notify its sponsoring entity (if applicable) and all relevant 
withholding agents if it revokes its election.
    (iv) Revocation of election by Commissioner. The election may be 
revoked by the Commissioner upon an event of default described in 
paragraph (v) of this section.
    (v) Event of default. An event of default occurs if a direct 
reporting NFFE fails to perform any of the obligations described in 
(c)(3)(i) through (vi) of this section. An event of default also 
includes any misrepresentation of a material fact to the IRS.
    (vi) Notice of event of default. Following an event of default 
known by or disclosed to the IRS, the IRS will deliver to the NFFE a 
notice of default specifying the event of default. The IRS will request 
that the NFFE remediate the event of default within a specified time 
period. The NFFE must respond to the notice of default and provide 
information responsive to an IRS request for information or state the 
reasons why the NFFE does not agree that an event of default has 
occurred. If the NFFE does not provide a response within the specified 
time period, the IRS may, at its sole discretion, deliver a notice to 
the NFFE that its election to be treated as a direct reporting NFFE has 
been revoked. A NFFE may request, within 90 days of receipt, 
reconsideration of a notice of default or notice of revocation by 
written request to the Deputy Commissioner (International), LB&I.
    (vii) Remediation of event of default. A NFFE will be permitted to 
remediate an event of default to the extent it agrees with the IRS on a 
remediation plan. The IRS may, as part of a remediation plan, require 
additional information from the NFFE.
    (5) Election by a direct reporting NFFE to be treated as a 
sponsored direct reporting NFFE.
    (i) Definition of sponsored direct reporting NFFE. A NFFE is a 
sponsored direct reporting NFFE if the NFFE is a direct reporting NFFE 
and if another entity, other than a nonparticipating FFI, has agreed 
with the NFFE to act as its sponsoring entity, as described in 
paragraph (c)(5)(ii) of this section.
    (ii) Requirements for sponsoring entity of a sponsored direct 
reporting NFFE. A sponsoring entity meets the requirements of this 
paragraph (c)(5)(ii) if the sponsoring entity--
    (A) Is authorized to act on behalf of the NFFE;
    (B) Has registered with the IRS as a sponsoring entity;
    (C) Has registered the NFFE with the IRS as a sponsored direct 
reporting NFFE;
    (D) Agrees to perform, on behalf of the NFFE, all due diligence, 
reporting, and other requirements that the NFFE would have been 
required to perform as a direct reporting NFFE;
    (E) Identifies the NFFE in all reporting completed on the NFFE's 
behalf;
    (F) Complies with the certification and other requirements in 
paragraphs (f) and (g) of this section;
    (G) Has not had its status as a sponsoring entity revoked; and
    (H) Agrees to notify all relevant withholding agents and the IRS if 
its status as a sponsoring entity is revoked, if it otherwise ceases to 
be the sponsoring entity of any of its sponsored direct reporting NFFEs 
(for example, if the sponsored direct reporting NFFE changes sponsors), 
or if the status of any of its sponsored direct reporting NFFEs has 
been revoked.
    (iii) Revocation of status as sponsoring entity. The IRS may revoke 
a sponsoring entity's status as a sponsoring entity with respect to all 
sponsored direct reporting NFFEs if there is a material failure by the 
sponsoring entity to comply with its obligations under paragraph 
(c)(5)(ii) of this section with respect to any sponsored direct 
reporting NFFE.
    (iv) Liability of sponsoring entity. A sponsoring entity is not 
liable for any failure to comply with the obligations contained in 
paragraph (c)(5)(ii) of this section. A sponsored direct reporting NFFE 
will remain liable for all of its chapter 4 obligations without regard 
to any failure of its sponsoring entity to comply with the obligations 
contained in paragraph (c)(5)(ii) of this section that the sponsoring 
entity has agreed to undertake on behalf of the NFFE.
    (d) [Reserved]. For further guidance, see Sec.  1.1472-1(d).
    (1) In general. For purposes of this section, except in the case of 
a payee that is a QI, WP, or WT, a withholding agent may treat a 
withholdable payment as beneficially owned by the payee as determined 
under Sec.  1.1471-3. Thus, a withholding agent may treat a 
withholdable payment as beneficially owned by an excepted NFFE (other 
than a QI, WP, or WT) if the withholding agent can reliably associate 
the payment with valid documentation to determine the payee's status as 
an excepted NFFE under the rules of Sec.  1.1471-3(d).
    (2) Payments made to a NFFE that is a QI, WP, or WT. A withholding 
agent may treat the payee of a withholdable payment as a NFFE that is a 
QI, WP, or WT if the withholding agent can reliably associate the 
payment with valid documentation to determine the payee's status as 
such under the rules of Sec.  1.1471-3(b)(3) and (d).
    (3) through (5) [Reserved]. For further guidance, see Sec.  1.1472-
1(d)(3) through (5).
    (e) [Reserved]. For further guidance, see Sec.  1.1472-1(e) through 
(e)(2).
    (f) Sponsoring entity verification. [Reserved].
    (g) Sponsoring entity event of default. [Reserved].
    (h) [Reserved]. For further guidance, see Sec.  1.1472-1(h).
    (i) Expiration date. The applicability of this section expires on 
February 28, 2017.
0
Par. 16. Section 1.1473-1 is amended by revising paragraphs (a)(2)(vi), 
(a)(3)(iii)(B)(4), (a)(4)(vi), (a)(5)(i) through (vi), and (b)(2)(v) 
and by adding new paragraph (a)(4)(vii) to read as follows:


Sec.  1.1473-1  Section 1473 definitions.

    (a) * * *
    (2) * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(2)(vi).
* * * * *
    (3) * * *
    (iii) * * *
    (B) * * *
    (4) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(3)(iii)(B)(4).
* * * * *
    (4) * * *

[[Page 12861]]

    (vi) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(4)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(4)(vii).
    (5) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1473-1T(a)(5)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(5)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(5)(iii).
    (iv) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(5)(iv).
    (v) [Reserved]. For further guidance, see Sec.  1.1473-1T(a)(5)(v).
    (vi) [Reserved]. For further guidance, see Sec.  1.1473-
1T(a)(5)(vi).
* * * * *
    (b) * * *
    (2) * * *
    (v) [Reserved]. For further guidance, see Sec.  1.1473-1T(b)(2)(v).
* * * * *

0
Par. 17. Section 1.1473-1T is added to read as follows:


Sec.  1.1473-1T  Section 1473 definitions (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1473-1(a).
    (1) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(1) 
through (a)(1)(ii).
    (2) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(2).
    (i) through (v) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(2)(i) through (v).
    (vi) Special rule for sales of interest bearing debt obligations. 
Income that is otherwise described as U.S. source FDAP income in 
paragraphs (a)(2)(i) through (v) of this section does not include an 
amount of interest accrued on the date of a sale or exchange of an 
interest bearing debt obligation if the sale occurs between two 
interest payment dates and is not part of a plan described in Sec.  
1.1441-3(b)(2)(ii).
    (vii) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(2)(vii) through (a)(2)(vii)(B).
    (3) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(3).
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1473-1(a)(3)(i) through (a)(3)(ii)(C).
    (iii) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(3)(iii).
    (A) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(3)(iii)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(3)(iii)(B).
    (1) through (3) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(3)(iii)(B)(1) through (3).
    (4) In the case of a sale of an obligation described in paragraph 
(a)(2)(vi), gross proceeds includes any interest accrued between 
interest payment dates other than an amount described in paragraph 
(a)(2)(vi) of this section that is treated as U.S. source FDAP income; 
and
    (5) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(3)(iii)(B)(4).
    (4) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(4).
    (i) through (v) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(4)(i) through (v).
    (vi) Offshore payments of U.S. source FDAP income prior to 2017 
(transitional). A payment with respect to an offshore obligation made 
prior to January 1, 2017, if such payment is U.S. source FDAP income 
and made by a person that is not acting as an intermediary or as a WP 
or WT with respect to the payment. The exception for offshore payments 
of U.S. source FDAP income provided in the preceding sentence shall not 
apply, however, in the case of a flow-through entity that has a 
residual withholding requirement with respect to its partners, owners, 
or beneficiaries under Sec.  1.1471-2(a)(2)(ii), or in the case of 
payments made with respect to debt or equity issued by a U.S. person 
(excluding interest payments made by a foreign branch of a U.S. 
financial institution with respect to depository accounts it maintains 
for retail customers). For purposes of this paragraph (a)(4)(vi), an 
intermediary includes a person that acts as a qualified securities 
lender as defined for purposes of chapter 3 and does not include a 
person acting as an insurance broker with respect to premiums.
    (vii) Collateral arrangements prior to 2017 (transitional). A 
payment made prior to January 1, 2017, by a secured party with respect 
to collateral securing one or more transactions under a collateral 
arrangement, provided that only a commercially reasonable amount of 
collateral is held by the secured party as part of the collateral 
arrangement. For purposes of this paragraph (a)(4)(vii), the term 
transaction generally includes a debt instrument, a derivative 
financial instrument (including a notional principal contract, future, 
forward, and option), and any securities lending transaction, sale-
repurchase transaction, margin loan, or substantially similar 
transaction that is subject to a collateral arrangement.
    (5) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(5).
    (i) In general. This paragraph (a)(5) provides special rules for a 
flow-through entity, complex trust, or estate to determine when such 
entity must treat a payment of U.S. source FDAP income that is also a 
withholdable payment as having been paid by such entity to its 
partners, owners, or beneficiaries (as applicable depending on the type 
of entity).
    (ii) Partnerships. An amount of U.S. source FDAP income that is 
also a withholdable payment is treated as being paid to a partner under 
rules similar to the rules prescribing when withholding is required for 
chapter 3 purposes as described in Sec.  1.1441-5(b)(2)(i)(A).
    (iii) Simple trusts. An amount of U.S. source FDAP income that is 
also a withholdable payment is treated as being paid to a beneficiary 
of a simple trust under rules similar to the rules prescribing when 
withholding is required for chapter 3 purposes as described in Sec.  
1.1441-5(b)(2)(ii).
    (iv) Complex trusts and estates. An amount of U.S. source FDAP 
income that is also a withholdable payment is treated as being paid to 
a beneficiary of a complex trust or estate under rules similar to the 
rules prescribing when withholding is required for chapter 3 purposes 
as described in Sec.  1.1441-5(b)(2)(iii).
    (v) Grantor trusts. If an amount of U.S. source FDAP income that is 
also a withholdable payment is paid to a grantor trust, a person 
treated as an owner of all or a portion of such trust is treated as 
having been paid such income by the trust at the time it is received by 
or credited to the trust or portion thereof.
    (vi) Special rule for an NWP or NWT. In the case of a partnership, 
simple trust, or complex trust that is an NWP or NWT, the rules 
described in paragraphs (a)(5)(ii) and (iii) of this section shall not 
apply, and U.S. source FDAP income that is also a withholdable payment 
is treated as being paid to the partner or beneficiary at the time the 
income is paid to the partnership or trust, respectively.
    (vii) [Reserved]. For further guidance, see Sec.  1.1473-
1(a)(5)(vii).
    (6) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(6).
    (7) [Reserved]. For further guidance, see Sec.  1.1473-1(a)(7).
    (b) [Reserved]. For further guidance, see Sec.  1.1473-1(b).
    (1) [Reserved]. For further guidance, see Sec.  1.1473-1(b)(1) 
through (b)(1)(iii)(B).
    (2) [Reserved]. For further guidance, see Sec.  1.1473-1(b)(2).
    (i) through (iv) [Reserved]. For further guidance, see Sec.  
1.1473-1(b)(2)(i) through (iv).
    (v) Interests owned or held by a related person. For purposes of 
determining whether a specified U.S. person is a substantial U.S. owner 
in a foreign entity described in paragraphs

[[Page 12862]]

(b)(2)(i) through (iv) of this section, if a specified U.S. person owns 
or holds, directly or indirectly, any interest in the foreign entity, 
that interest must be aggregated with any such interest in the foreign 
entity owned or held, directly or indirectly, by a related person. For 
purposes of the preceding sentence, a related person is a person or 
spouse of a person described in Sec.  1.267(c)-1(a)(4), determined by 
reference to such specified U.S. person.
    (3) through (7) [Reserved]. For further guidance, see Sec.  1.1473-
1(b)(3) through (7).
    (c) through (f) [Reserved]. For further guidance, see Sec.  1.1473-
1(c) through (f).
    (g) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 18. Section 1.1474-1 is amended:
0
1. By removing paragraphs (d)(1)(ii)(A)(1)(ix), (d)(3)(iii), 
(d)(4)(ii)(C), and (i)(1)(iv) through (v).
0
2. By redesignating paragraphs (d)(1)(ii)(A)(1)(x) through (xii) as 
(d)(1)(ii)(A)(1)(ix) through (xi), and paragraphs (d)(3)(iv) through 
(x) as (d)(3)(iii) through (ix).
0
3. By revising paragraphs (d)(1)(i), (d)(1)(ii)(A)(1)(viii) through 
(ix), (d)(1)(ii)(B)(1)(i), (d)(1)(ii)(B)(1)(vi) through (vii), 
(d)(1)(ii)(B)(1)(ix), (d)(2)(i), (d)(4)(i)(B), (d)(4)(i)(E), 
(d)(4)(ii)(B), (d)(4)(iii), (i)(1) introductory text, (i)(1)(i) through 
(iii), (i)(2) introductory text, and (i)(2)(iii).
    The additions and revisions read as follows:


Sec.  1.1474-1  Liability for withheld tax and withholding agent 
reporting.

* * * * *
    (d) * * *
    (1) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1474-1T(d)(1)(i).
    (ii) * * *
    (A) * * *
    (1) * * *
    (viii) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(A)(1)(viii).
    (ix) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(A)(1)(ix).
* * * * *
    (B) * * *
    (1) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(B)(1)(i).
* * * * *
    (vi) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(B)(1)(vi).
    (vii) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(B)(1)(vii).
* * * * *
    (ix) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(1)(ii)(B)(1)(ix).
* * * * *
    (2) * * *
    (i) [Reserved]. For further guidance, see Sec.  1.1474-1T(d)(2)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(2)(i)(A).
    (B) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(2)(i)(B).
    (C) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(2)(i)(C).
* * * * *
    (4) * * *
    (i) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(4)(i)(B).
* * * * *
    (E) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(4)(i)(E).
    (ii) * * *
    (B) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(4)(ii)(B).
    (C) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(4)(ii)(C).
    (iii) * * *
    (A) [Reserved]. For further guidance, see Sec.  1.1474-
1T(d)(4)(iii) through (d)(4)(iii)(C).
* * * * *
    (i) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1474-1T(i)(1).
    (i) [Reserved]. For further guidance, see Sec.  1.1474-1T(i)(1)(i).
    (ii) [Reserved]. For further guidance, see Sec.  1.1474-
1T(i)(1)(ii).
    (iii) [Reserved]. For further guidance, see Sec.  1.1474-
1T(i)(1)(iii) through (i)(1)(iii)(E).
    (2) [Reserved]. For further guidance, see Sec.  1.1474-1T(i)(2).
* * * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.1474-
1T(i)(2)(iii).
* * * * *

0
Par. 19. Section 1.1474-1T is added to read as follows:


Sec.  1.1474-1T  Liability for withheld tax and withholding agent 
reporting (temporary).

    (a) through (c) [Reserved]. For further guidance, see Sec.  1.1474-
1(a) through (c)(3).
    (d) [Reserved]. For further guidance, see Sec.  1.1474-1(d).
    (1) [Reserved]. For further guidance, see Sec.  1.1474-1(d)(1).
    (i) In general. Except as otherwise provided in paragraph (d)(4) of 
this section or in the instructions to Form 1042-S, every withholding 
agent must file an information return on Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding,'' (or such other 
form as the IRS may prescribe) to report to the IRS chapter 4 
reportable amounts as described in paragraph (d)(2)(i) of this section 
that were paid to a recipient during the preceding calendar year. 
Except as otherwise provided in paragraphs (d)(4)(ii)(B) (certain 
unknown recipients) and (d)(4)(i)(B) and (d)(4)(iii)(A) of this section 
(describing payees includable in reporting pools of a participating FFI 
or registered deemed-compliant FFI), a separate Form 1042-S must be 
filed with the IRS for each recipient of an amount subject to reporting 
under paragraph (d)(2)(i) of this section and for each separate type of 
payment made to a single recipient in accordance with paragraph 
(d)(4)(i) of this section. The Form 1042-S shall be prepared in such 
manner as the form and its accompanying instructions prescribe. One 
copy of the Form 1042-S shall be filed with the IRS on or before March 
15 of the calendar year following the year in which the amount subject 
to reporting was paid, with a transmittal form as provided in the 
instructions to the form. Withholding certificates, certifications, 
documentary evidence, or other statements or documentation provided to 
a withholding agent are not required to be attached to the form. A copy 
of the Form 1042-S must be furnished to the recipient for whom the form 
is prepared (or any other person, as required under this paragraph or 
the instructions to the form) and to any intermediary or flow-through 
entity described in paragraph (d)(3)(vii) of this section on or before 
March 15 of the calendar year following the year in which the amount 
subject to reporting was paid. The withholding agent must retain a copy 
of each Form 1042-S for the period of limitations on assessment and 
collection applicable to the tax reportable on the Form 1042 to which 
the Form 1042-S relates (determined as set forth in paragraph (c)(1) of 
this section). See paragraph (d)(4)(iii) of this section for the 
additional reporting requirements of participating FFIs and deemed-
compliant FFIs.
    (ii) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(A).
    (1) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(A)(1).
    (i) through (vii) [Reserved]. For further guidance, see Sec.  
1.1474-1(d)(1)(ii)(A)(1)(i) through (vii).
    (viii) An excepted NFFE and passive NFFE that also is not a flow-
through entity and that is not acting as an agent or intermediary with 
respect to the payment;
    (ix) A foreign person that is a partner or beneficiary in a flow-
through entity that is a NFFE (looking through a partner or beneficiary 
that is a foreign intermediary or flow-through entity);

[[Page 12863]]

    (x) through (xi) [Reserved]. For further guidance, see Sec.  
1.1474-1(d)(1)(ii)(A)(1)(x) through (xi).
    (2) through (3) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(A)(2) through (3).
    (B) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(B).
    (1) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(B)(1).
    (i) A certified deemed-compliant FFI that is an NQI, NWP, or NWT 
and that fails to provide its withholding agent with sufficient 
information to allocate the payment to its account holders and payees;
    (ii) through (v) [Reserved]. For further guidance, see Sec.  
1.1474-1(d)(1)(ii)(B)(1)(ii) through (v).
    (vi) An account holder or payee of a nonparticipating FFI except to 
the extent described in paragraph (d)(1)(ii)(A)(1)(x) of this section 
for an exempt beneficial owner;
    (vii) Except as provided in paragraph (d)(1)(ii)(A)(1) of this 
section, an entity that is disregarded under Sec.  301.7701-2(c)(2) as 
an entity separate from its owner;
    (viii) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(B)(1)(viii).
    (ix) A passive NFFE or an excepted NFFE that is a flow-through 
entity or acts as an intermediary;
    (2) through (3) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(1)(ii)(B)(2) through (3).
    (2) [Reserved]. For further guidance, see Sec.  1.1474-1(d)(2).
    (i) In general. Subject to paragraph (d)(2)(iii) of this section, 
the term chapter 4 reportable amount means each of the following 
amounts reportable on a Form 1042-S for purposes of chapter 4--
    (A) An amount of a withholdable payment that is subject to 
withholding under chapter 4 paid after June 30, 2014;
    (B) An amount of a withholdable payment of U.S. source FDAP income 
that is also reportable on Form 1042-S under Sec.  1.1461-1(c)(2)(i); 
or
    (C) A foreign passthru payment subject to withholding under chapter 
4.
    (ii) through (iii) [Reserved]. For further guidance, see Sec.  
1.1474-1(d)(2)(ii) through (iii).
    (3) [Reserved]. For further guidance, see Sec.  1.1474-1(d)(3) 
through (d)(3)(x).
    (4) [Reserved]. For further guidance, see Sec.  1.1474-1(d)(4).
    (i) [Reserved]. For further guidance, see Sec.  1.1474-1(d)(4)(i).
    (A) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(4)(i)(A).
    (B) Payments to participating FFIs, deemed-compliant FFIs, and 
certain QIs. Except as otherwise provided in this paragraph 
(d)(4)(i)(B), a U.S. withholding agent that makes a payment of a 
chapter 4 reportable amount to a participating FFI or deemed-compliant 
FFI that is an NQI, NWP, or NWT must complete a Form 1042-S treating 
such FFI as the recipient. With respect to a payment of U.S. source 
FDAP income made to a participating FFI or registered deemed-compliant 
FFI that is an NQI, NWP, or NWT or QI that elects to be withheld upon 
under section 1471(b)(3) and from whom the withholding agent receives 
an FFI withholding statement allocating the payment (or portion of the 
payment) to a chapter 4 withholding rate pool, a U.S. withholding agent 
must complete a separate Form 1042-S issued to the participating FFI, 
registered deemed-compliant FFI, or QI (as applicable) as the recipient 
with respect to each such pool identified on an FFI withholding 
statement, described in Sec.  1.1471-3(c)(3)(iii)(B)(2). If, however, a 
participating FFI, deemed-compliant FFI, or QI (as applicable) has made 
an election under Sec.  1.1471-4(b)(3)(iii), for the portion of the 
payment that the FFI allocates to each recalcitrant account holder that 
is subject to backup withholding under section 3406, the withholding 
agent must report on Form 1099 the amount of the payment and tax 
withheld in accordance with the form's requirements and accompanying 
instructions. See Sec.  1.1471-2(a)(2)(i) for the requirement of a 
withholding agent to withhold on payments of U.S. source FDAP income 
made to a participating FFI or registered deemed-compliant FFI that is 
an NQI, NWP, or NWT. See also Sec.  1.1471-2(a)(2)(iii) in the case of 
payments made to a QI. See Sec.  1.1461-1(c)(4)(A) for the extent to 
which reporting is required under that section for U.S. source FDAP 
income that is reportable on Form 1042-S under chapter 3 and not 
subject to withholding under chapter 4, in which case the U.S. 
withholding agent must report in the manner described under Sec.  
1.1461-1(c)(4)(ii) and paragraph (d)(4)(ii)(A) of this section. See 
paragraph (d)(4)(ii)(A) of this section for reporting rules applicable 
if participating FFIs or deemed-compliant FFIs provide specific payee 
information for reporting to the recipient of the payment for Form 
1042-S reporting purposes. See paragraph (d)(4)(iii) of this section 
for the residual reporting responsibilities of an NQI, NWP, or NWT that 
is an FFI.
    (C) through (D) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(4)(i)(C) through (d)(4)(i)(D)(3).
    (E) Amounts paid to NFFEs. A U.S. withholding agent that makes 
payments of chapter 4 reportable amounts to an excepted or passive NFFE 
shall complete Forms 1042-S treating the NFFE as the recipient, except 
when the NFFE is a flow-through entity or acting as an intermediary and 
the partner or beneficiary is treated as the payee. In cases in which 
the chapter 4 reportable amount is also an amount of U.S. source FDAP 
income reportable on Form 1042-S (described in Sec.  1.1441-2(a)), see 
also Sec.  1.1461-1(c)(4)(A) for the extent to which reporting is 
required with respect to the partners, beneficiaries, or owners of such 
entities.
    (ii) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(4)(ii).
    (A) [Reserved]. For further guidance, see Sec.  1.1474-
1(d)(4)(ii)(A).
    (B) Nonparticipating FFI that is a flow-through entity or 
intermediary. If a withholding agent makes a payment of a chapter 4 
reportable amount to a nonparticipating FFI that it is required to 
treat as an intermediary with regard to a payment or as a flow-through 
entity under rules described in Sec.  1.1471-3(c)(3)(iii), and except 
as otherwise provided in paragraph (d)(1)(ii)(A)(1)(x) of this section 
(relating to an exempt beneficial owner), the withholding agent must 
report the recipient of the payment as an unknown recipient and report 
the nonparticipating FFI as provided in paragraph (d)(4)(ii)(A) of this 
section for an entity not treated as a recipient.
    (C) Disregarded entities. If a U.S. withholding agent makes a 
payment to a disregarded entity and receives a valid withholding 
certificate or other documentary evidence from the person that is the 
single owner of such disregarded entity, the withholding agent must 
file a Form 1042-S treating the single owner as the recipient in 
accordance with the instructions to the Form 1042-S.
    (iii) Reporting by participating FFIs and deemed-compliant FFIs 
(including QIs, WPs, and WTs)--(A) In general. Except as otherwise 
provided in paragraph (d)(4)(iii)(B) (relating to NQIs, NWPs, NWTs, and 
FFIs electing under section 1471(b)(3)) and Sec.  1.1471-4(d)(2)(ii)(F) 
(relating to transitional payee-specific reporting for payments to 
nonparticipating FFIs), a participating FFI or deemed-compliant FFI 
(including a QI, WP, WT, or U.S. branch of a participating FFI that is 
not treated as a U.S. person) that makes a payment that is a chapter 4 
reportable amount to a recalcitrant account holder or nonparticipating 
FFI must complete a Form 1042-S to report such payments. A 
participating FFI or registered deemed-compliant FFI (including a QI, 
WP, WT, or U.S. branch of a participating FFI that is not treated as a 
U.S. person) may report in pools consisting of its recalcitrant account

[[Page 12864]]

holders and payees that are nonparticipating FFIs. With respect to 
recalcitrant account holders, the FFI may report in pools consisting of 
recalcitrant account holders within a particular status described in 
Sec.  1.1471-4(d)(6) and within a particular income code. Except as 
otherwise provided in Sec.  1.1471-4(d)(2)(ii)(F), with respect to 
payees that are nonparticipating FFIs, the FFI may report in pools 
consisting of one or more nonparticipating FFIs that fall within a 
particular income code and within a particular status code described in 
the instructions to Form 1042-S. Alternatively, a participating FFI or 
registered deemed-compliant FFI (including a QI, WP, WT, or U.S. branch 
of a participating FFI that is not treated as a U.S. person) may (and a 
certified deemed-compliant FFI is required to) perform payee-specific 
reporting to report a chapter 4 reportable amount paid to a 
recalcitrant account holder or a nonparticipating FFI when withholding 
was applied (or should have applied) to the payment.
    (B) Special reporting requirements of participating FFIs, deemed-
compliant FFIs, and FFIs that make an election under section 
1471(b)(3). Except as otherwise provided in Sec.  1.1471-
4(d)(2)(ii)(F), a participating FFI or deemed-compliant FFI that is an 
NQI, NWP, NWT (including a U.S. branch of a participating FFI that is 
not treated as a U.S. person), or an FFI that has made an election 
under section 1471(b)(3) and has provided sufficient information to its 
withholding agent to withhold and report the payment is not required to 
report the payment on Form 1042-S as described in paragraph 
(d)(4)(iii)(A) of this section if the payment is made to a 
nonparticipating FFI or recalcitrant account holder and its withholding 
agent has withheld the correct amount of tax on such payment and 
correctly reported the payment on a Form 1042-S. Such FFI is required 
to report a payment, however, when the FFI knows, or has reason to 
know, that less than the required amount has been withheld by the 
withholding agent on the payment or the withholding agent has not 
correctly reported the payment on Form 1042-S. In such case, the FFI 
must report on Form 1042-S to the extent required under paragraph 
(d)(4)(iii)(A) of this section. See, however, Sec.  1.1471-4(d)(6) for 
the requirement to report certain aggregate information regarding 
accounts held by recalcitrant account holders on Form 8966, ``FATCA 
Report,'' regardless of whether withholdable payments are made to such 
accounts.
    (C) Reporting by a U.S. branch of a participating FFI or registered 
deemed-compliant FFI treated as a U.S. person. A U.S. branch of a 
participating FFI or registered deemed-compliant FFI that is treated as 
a U.S. person must report amounts paid to recipients on Forms 1042-S in 
the same manner as a U.S. withholding agent under paragraph (d)(4)(i) 
of this section.
    (iv) through (vi) [Reserved]. For further guidance, see Sec.  
1.1474-1(d)(4)(iv) through (vi).
    (e) through (h) [Reserved]. For further guidance, see Sec.  1.1474-
1(e) through (h).
    (i) [Reserved]. For further guidance, see Sec.  1.1474-1(i).
    (1) Reporting by certain withholding agents with respect to owner-
documented FFIs.
    (i) Beginning on July 1, 2014, if a withholding agent (other than 
an FFI reporting accounts held by owner-documented FFIs under Sec.  
1.1471-4(d)) makes a withholdable payment to an entity account holder 
or payee of an obligation and the withholding agent treats the entity 
as an owner-documented FFI under Sec.  1.1471-3(d)(6), the withholding 
agent is required to report for July 1 through December 31, 2014, with 
respect to each specified U.S. person that has a direct or indirect 
debt or equity interest in such entity the information described in 
paragraph (i)(1)(iii) of this section.
    (ii) Beginning in calendar year 2015, if a withholding agent (other 
than an FFI reporting accounts held by owner-documented FFIs under 
Sec.  1.1471-4(d)) makes during a calendar year a payment of a chapter 
4 reportable amount to an entity account holder or payee of an 
obligation and the withholding agent treats the entity as an owner-
documented FFI under Sec.  1.1471-3(d)(6), the withholding agent is 
required to report for such calendar year with respect to each 
specified U.S. person that has a direct or indirect debt or equity 
interest in such entity the information described in paragraph 
(i)(1)(iii) of this section.
    (iii) The information that a withholding agent (other than an FFI 
reporting accounts held by owner-documented FFIs under Sec.  1.1471-
4(d)) is required to report under paragraphs (i)(1)(i) and (i)(1)(ii) 
of this section must be made on Form 8966 (or such other form as the 
IRS may prescribe) and filed on or before March 31 of the calendar year 
following the year in which the withholdable payment was made. The 
report must contain the following information--
    (A) The name of the owner-documented FFI;
    (B) The name, address, and TIN of each specified U.S. person 
identified in Sec.  1.1471-3(d)(6)(iv)(A)(1) and (2);
    (C) For the period from July 1 through December 31, 2014, the total 
of all payments made to the owner-documented FFI and with respect to 
payments made after the 2014 calendar year the total of all payments 
made to the owner-documented FFI during the calendar year;
    (D) The account balance or value of the account held by the owner-
documented FFI; and
    (E) Any other information required on Form 8966 and its 
accompanying instructions provided for purposes of such reporting.
    (2) Reporting by certain withholding agents with respect to U.S. 
owned foreign entities that are NFFEs. Beginning on July 1, 2014, in 
addition to the reporting on Form 1042-S required under paragraph 
(d)(4)(i)(E) of this section, a withholding agent (other than an FFI 
reporting accounts held by NFFEs under Sec.  1.1471-4(d)) that receives 
information about any substantial U.S. owners of a NFFE that is not an 
excepted NFFE as defined in Sec.  1.1472-1(c) shall file a report with 
the IRS for the period from July 1 through December 31, 2014, and in 
each subsequent calendar year with respect to any substantial U.S. 
owners of such NFFE. Such report must be made on Form 8966 (or such 
other form as the IRS may prescribe) and filed on or before March 31 of 
the calendar year following the year in which the withholdable payment 
was made. The IRS shall grant an automatic 90-day extension of time in 
which to file Form 8966. Form 8809, ``Request for Extension of Time to 
File Information Returns,'' (or such other form as the IRS may 
prescribe) must be used to request such extension of time and must be 
filed no later than the due date of Form 8966. Under certain hardship 
conditions, the IRS may grant an additional 90-day extension. A request 
for extension due to hardship must contain a statement of the reasons 
for requesting the extension and such other information as the form or 
instructions may require. The report must contain the following 
information--
    (i) through (ii) [Reserved]. For further guidance, see Sec.  
1.1474-1(i)(2)(i) through (ii).
    (iii) For the period from July 1, 2014 through December 31, 2014, 
the total of all payments made to the NFFE and, with respect to 
payments made after the 2014 calendar year, the total of all payments 
made to the NFFE during the calendar year; and
    (iv) [Reserved]. For further guidance, see Sec.  1.1474-
1(i)(2)(iv).
    (3) [Reserved]. For further guidance, see Sec.  1.1474-1(i)(3).

[[Page 12865]]

    (j) [Reserved]. For further guidance, see Sec.  1.1474-1(j).
    (k) Expiration date. The applicability of this section expires on 
February 28, 2017.

0
Par. 20. Section 1.1474-6 is amended by revising paragraph (b)(1), by 
redesignating paragraph (f) as (g), and by adding new paragraph (f) to 
read as follows:


Sec.  1.1474-6  Coordination of chapter 4 with other withholding 
provisions.

* * * * *
    (b) * * *
    (1) [Reserved]. For further guidance, see Sec.  1.1474-6T(b)(1).
* * * * *
    (f) [Reserved]. For further guidance, see Sec.  1.1474-6T(f).
* * * * *
0
Par. 21. Section 1.1474-6T is added to read as follows:


Sec.  1.1474-6T  Coordination of chapter 4 with other withholding 
provisions (temporary).

    (a) [Reserved]. For further guidance, see Sec.  1.1474-6(a).
    (b) [Reserved]. For further guidance, see Sec.  1.1474-6(b).
    (1) In general. In the case of a withholdable payment that is both 
subject to withholding under chapter 4 and is an amount subject to 
withholding under Sec.  1.1441-2(a), a withholding agent may credit the 
withholding applied under chapter 4 against its liability for any tax 
due under sections 1441, 1442, or 1443. See Sec.  1.1474-1(c) and (d) 
for the income tax return and information return reporting requirements 
that apply in the case of a payment that is a withholdable payment 
subject to withholding under chapter 4 that is also an amount subject 
to withholding under Sec.  1.1441-2(a).
    (2) through (3) [Reserved]. For further guidance, see Sec.  1.1474-
6(b)(2) through (3).
    (c) through (e) [Reserved]. For further guidance, see Sec.  1.1474-
6(c) through (e).
    (f) Coordination with section 3406. A participating FFI that makes 
a withholdable payment that is also a reportable payment (as defined in 
the relevant sections of chapter 61) to a recalcitrant account holder 
that is a U.S. non-exempt recipient is not required to withhold under 
section 3406 if it withholds on the payment at a 30-percent rate in 
accordance with its withholding obligations under chapter 4. See, 
however, Sec.  1.1471-4(b)(3)(iii) for the election to withhold on 
recalcitrant account holders that are non-exempt U.S. recipients under 
section 3406 instead of withholding under chapter 4.
    (g) [Reserved]. For further guidance, see Sec.  1.1474-6(g).
    (h) Expiration date. The applicability of this section expires on 
February 28, 2017.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: February 14, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-03967 Filed 2-28-14; 4:15 pm]
BILLING CODE 4830-01-P